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Chill out on tax-change talk — it’s too early

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Distribution Alternatives in Lino Lakes warned that the 6.875 percent sales tax increase would put his business at a disadvantage against his competitors who won’t have to pass on the increase to their customers.

The following is an editorial from the Mankato Free Press.

The ink is hardly dry on the new Minnesota sales taxes and already lawmakers are talking about changes.

Some state businesses that face sales tax on warehousing services next year have been vocal about moving out of state if the tax kicks in. Expansion of the sales tax on some services while exempting purchases by local governments was a key initiative in the last session. But Distribution Alternatives in Lino Lakes warned that the 6.875 percent increase would put his business at a disadvantage against his competitors who won’t have to pass on the increase to their customers.

Minnesota Public Radio reported that some Democrats in charge of both the House and Senate tax committees say they are willing to revisit that tax.

And then there’s the increased sales tax on business-related equipment repairs. Rural lawmakers have voiced their concerns about the increase in the sales tax for farm equipment and want an exemption.

House Tax Chair Ann Lenczewski told Minnesota Public Radio she is willing to revisit the sales tax changes next session. However she is concerned that if there are any repeals just how they plan on filling any resulting shortage to the $300 million revenue that was projected to come in. “I’m not interested in raising any taxes at all for anything. We did that this past session,” she said. “People can cut some things.”

And, frankly, that is one of the appropriate responses to have at this time. The Legislature passed tax increases on higher incomes, tobacco, warehouse services and elimination of some corporate subsidies amounting to a $2 billion tax increase. And with it came an expansion in spending which Democrats have said is just meeting pent-up demand from years under tight Republican control.

This increase in spending comes with a price and if revenues fall short, maybe the answer isn’t increasing more taxes but tamping down spending.

The second appropriate response comes from Revenue Commissioner Myron Frans, who told Politics in Minnesota on a separate taxing issue that judgment on revenues probably should wait until the November economic forecasts is compiled. We also would add we should hold judgment on any adverse effect resulting from taxation. We need empirical evidence not just anecdotal evidence.

Let’s cool our jets for the moment and allow for a dispassionate study on the effects the changes have had — economic changes, the consumption changes and expected change to the state coffers.

Reprinted with permission.

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Comments (3)

  1. Submitted by Greg Kapphahn on 06/25/2013 - 09:43 am.

    We’ve Been Hearing These “I’ll Move to Another State” Stories

    from business owners/executives for decades now. There’s a VERY long tradition of such alarmist cries from various economic interests.

    But the reality is, the Republican-demanded regimen of gutting (through budget cuts) government agencies so that it was no longer possible to enforce government regulations,…

    coupled with tax cuts for business and our state’s wealthiest residents NEVER produced economic growth or prosperity for regular Minnesotans.

    Which would lead me to question whether those who blame “taxes and government regulations” for the difficulty and failure of the enterprises may be lacking management skills, creative ideas, intelligence, or any number of other qualities necessary to effectively create, grow, and maintain a business.

    Indeed, instead of the massive, promised prosperity Gov. Pawlenty and his Republican friends thought must surely result from their policies, we saw our state’s economy go backward,…

    (as we currently see happening in Wisconsin).

    This leads me to conclude that what they believe about taxes and government regulation is not a factual, evidence-based perspective, but an article of FAITH;…

    one which, though earnestly believed is no more accurate, no more useful to base a life or our state’s economy on than the “literal” interpretation of the First Chapter of Genesis which proclaims quite clearly that the earth is flat, that the sun, moon and stars travel across a transparent dome above our heads, that the sky is blue because that dome is holding back the water which fills the universe and completely surrounds us both above the sky and beneath the ground.

    Of course that first chapter of the Bible represents the very best scientific and logical understandings of our ancient religious ancestors and was written by them, not as a factual description of actual creation, but to make the point that their God was the one responsible for it (as opposed to the many, many other “gods” of the surrounding nations and tribes).

    I regard the low taxes and zero regulations ideas of the Republicans to be along the same lines. Written by them as an article of faith to express what they believe must SURELY be true,…

    but until I see solid, direct, verifiable evidence to confirm that these new taxes really have damaged segments our state economy,…

    I will assume that these tales of future woe amount to nothing more nor less than re-enactments of another ancient tale:

    The Boy Who Cried Wolf.

  2. Submitted by Richard Callahan on 06/25/2013 - 06:23 pm.

    In my case …

    @Greg K.: Had the state fully enacted the original business-to-business sales tax I would have moved my small business to Hudson or River Falls. The sales tax on accounting, legal, and other professional services would have increased my expenses by about $30,000/year which is about 25% of income. There is no way that I would have been able to pass these cost on to my clients who are everywhere, but Minnesota. I calculated the cost of the move to be about $50,000 and the justification a no-brainer.

    Fortunately the tax wasn’t enacted, but it had me worried for a while. These sales taxes don’t affect big corporations that much since most of these professional services are handled internally, but they have a huge impact on small business.

  3. Submitted by Steve Rose on 06/25/2013 - 11:30 pm.

    Many have done it, more will follow

    At a former employer and about 25 years ago, I did business with a Minnesota manufacturer, who expanded – to Watertown, South Dakota. I visited their facility on two occasions, and learned that they were one of a dozen Minnesota companies that occupied new facilities in the same industrial complex in Watertown. Companies don’t just threaten to do it – they do it. No wolf.

    It seems unsustainable to create a brand new tax each time there is a shortfall. Might we eventually run out of new things to tax? What then, live within our means? Perish the thought.

    It is no way to run a family, a business, nor a government.

    Let’s cool our jets, while business owners buy packing boxes from out-of-state.

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