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Dayton’s controversial ‘snowbird tax’ may not fly

The prorated income tax proposal for part-time Minnesota residents raises lots of questions ranging from fairness to enforcement to constitutional concerns.

Trouble in paradise: A new Dayton income tax proposal would hit residents who escape harsh Minnesota winters for warmer environs, as well as other part-time residents.
REUTERS/Desmond Boylan

A tiny portion of the $2.1 billion revenue increase in Gov. Mark Dayton’s budget — a controversial proposal to tax part-time Minnesota residents known as “snowbirds” — has risen from the ashes of the governor’s last budget proposal.

Under Dayton’s plan, non-residents who live in Minnesota for two months to six months would be subject to the tax. The Republicans, who controlled the Legislature in 2011, beat it back then, along with the rest of the governor’s tax hikes.

The prorated income tax would fall largely on older vacationers and retirees — colloquially known as “snowbirds,” who leave the state for more than six months and set up residency in such places as Arizona and Florida.

When he unveiled the key pieces of his proposed $37.9 billion budget last week, Dayton said he included the tax as a matter of fairness.

Estimate: $30 million for biennium

The tax would raise about $30 million a biennium, according to Revenue Department estimates.

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The tax would be levied on non-residents’ “income from intangibles,” such as stocks and bonds, capital gains and dividends, said Joel Michael, a legislative analyst with the Minnesota House.

Income taxes are currently levied on work done in Minnesota regardless of residence status — for instance, a non-resident college student flipping burgers near the U of M pays state income tax — which would not change under the plan. Dayton’s tax proposal would apply to income that’s not “Minnesota-driven.”

At the Capitol, where $30 million is pocket change in the context of the state’s overall government operations, Dayton took a strong position.

“There is a snowbird tax — absolutely,” the DFL governor told reporters. “It’s one of the unfairnesses that somebody can spend six months and one day out of the state and pay no state personal income taxes and come back here and take advantage of all the state has to offer for five months and 29 days. So, yes, there’s a snowbird tax.”

The Revenue Department couldn’t provide details about how many people would pay the tax. Commissioner Myron Frans said that information might become available when the department revises the governor’s budget numbers for the February economic forecast.

State would be first to try such a tax

Frans said he believes Minnesota would be the first state to implement such a measure.

Self-reporting would make it difficult to enforce.

Incredulous Republicans — who said the tax would only serve to drive people away from Minnesota — questioned the enforcement angle and whether the measure is even legal.

“I don’t even think that’s constitutional,” Senate Minority Leader David Hann said shortly after the governor released his plan. “I don’t even know how you’d do that. As far as I can see, there’s not a lot of money attached to it. To me, it seems sort of gratuitous to say ‘We’re going to try do that.’ I mean, why? Is it $15 million attached to that? I don’t even get that.”

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Frans reiterated that Dayton’s budget should be viewed as a package of taxes and spending that will unravel if altered too much.

“You could start pulling out little pieces,” Frans said. “Even if it’s on something as small as this … if you start taking out revenue, something’s got to give.”

GOP Sen. Julianne Ortman, who chaired the Senate Taxes Committee when Republicans controlled the Legislature, described the move as “desperate” and said she doubted many DFLers would agree to the proposal.

“The administration of it would be incredibly challenging. How do you know how many days people are here in Minnesota, and do we even want government to try and track that?” she said. “I hope that cooler heads will prevail and common sense will be restored at some point.”

Frans said his department believes the proposal “would pass constitutional muster,” specifically citing a 1999 Minnesota court case related to taxes. He doesn’t expect legal challenges initially.

Acknowledging that the measure would require “voluntary compliance,” Frans said it would be incumbent on the state to educate people affected by the snowbird tax and provide an easy way to pay it. He didn’t provide specific enforcement measures.

“So many people do file multiple state returns … the compliance issue is not as complicated as it used to be,” Frans said.

DFL support uncertain

It’s unclear where DFL lawmakers stand on the measure.

Sen. Ann Rest, chairwoman of a Senate tax reform committee, said she only quickly reviewed the snowbird provision at the request of a reporter.

The New Hope Democrat, who will consider much of the governor’s tax plan, said she wouldn’t offer a snowbird tax bill. Rest’s committee has already heard two of her proposals to expand the state sales tax to clothing.

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Her committee will get an overview of the governor’s overall proposal this week. Until then, she was reluctant to talk about the plan’s chances in the Legislature.

“I wouldn’t call it an obscure provision, because it would affect any number of people, but I need to know more about what his intent was and how they would administer it, and whether they do believe that it would survive a constitutional challenge,” she said.

“I don’t have any preconceived notion about whether it’s a good idea or not.”