Some Cos. Say Tax Reform Would Level Playing Field

Meanwhile, the Minnesota Department of Revenue clarified that the governor’s proposed tax expansion would apply to all purchases made by Minnesota businesses—but not to services sold to out-of-state clients.

While a number of Minnesota business leaders have criticized Governor Mark Dayton’s proposed tax reform, some of the state’s companies say the move would simply level the playing field.

And new details about the plan show that expanded taxes will not apply to services and goods sold outside of the state.

Dayton released his budget proposal last month. It would reduce the state’s sales tax rate to 5.5 percent, but it would also add to the list of items that are subject to taxation, such as clothing items that cost more than $100 and a wide range of business services.

It’s a tax on those services—which include brokerage and investment counseling, legal and accounting services, architectural and engineering services, advertising and PR, and more—that have many Minnesota businesses up in arms.

For example, Steve Arndt, chief financial officer of Minneapolis-based ad agency Campbell Mithun, recently told Twin Cities Business that firms like his would be put at a competitive disadvantage if the tax is implemented.

“We’d have to look really closely at what actions to take” if Dayton’s tax expansion is approved, although the lost revenue would most likely cut into payroll and result in job losses, Arndt said.

Some companies have even hinted they would consider moving out of state if Dayton’s tax plan is implemented.

But other companies that already collect sales tax believe the current system lacks rationale, and tax reform is an issue of fairness. For example, Minnesota sales tax applies to pet grooming but not barber shops and dry cleaners but not coin-operated laundromats, according to a report by the Star Tribune.

“The lines have been drawn over the years, and they’ve been relatively arbitrary,” Minnesota Department of Revenue Commissioner Myron Frans told the Minneapolis newspaper. “There’s some people that say the rationale is simply: It depends on who was in the room when the bill was written.”

To learn more about the debate, as well as a brief history of Minnesota’s sales tax, read the full Star Tribune story here.

The Minnesota Department of Revenue on Friday released additional details about Dayton’s budget plan. It pointed out that the proposed tax on business-to-business services will not apply to services sold outside Minnesota. It would apply, however, to all purchases made by Minnesota businesses—including for services bought from outside the state.

To view the recently released details of Dayton’s proposal, including which products and services will be subject to taxation and which ones will be exempt, click here.