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Dayton drops parts of sales tax plan

ST. PAUL — It seemed as if pretty much no one liked Governor Mark Dayton’s proposal to tax business services, prompting him to overhaul a budget plan he presented six weeks ago.

Details of his new budget idea were expected to be released earlier this week.

Dayton on Friday told a TwinWest Chamber of Commerce meeting about his decision to dump the business tax, leaving those in the Capitol wondering what he might do to increase revenue he wants for programs such as education and economic development, as well as filling a budget deficit.

Republicans said the state needs no more money, so Dayton should not consider more taxes.

The Democratic governor planned to meet with key aides to work out details of his new budget plan.

After a February 28 state budget report revealed a smaller-than-expected deficit, Dayton needed to tweak his budget. Now, after responding to widespread criticism about the business tax, he is expected to offer a more comprehensive change for the

Democratic-controlled Legislature to consider.

Gone is a business-to-business sales tax that drew most of the ire. It would have been charged on services such as legal and accounting delivered to other businesses and consumers. Nearly every service would have been taxed under the original Dayton plan.

Dayton proposed to lower the sales tax rate from 6.875 percent to 5.5 percent, begin collecting it on most services and adding a tax on clothing costing $100 or more.

Also on Friday, Dayton said he probably will not pursue a cigarette tax increase he earlier wanted.

Democrats and Republicans both cheered Dayton’s Friday tax announcement. Republicans and Democrats joined the Minnesota Chamber of Commerce in cheering elimination of the business-to-business proposal.

Freshman Representative Mary Sawatzky, DFL-Willmar, met with Dayton Thursday, one of several lawmakers to have private or small-group meetings with him in recent days.

“The budget issue I heard the most concern about was business-to-business taxes,” Sawatzky said about town hall meetings she has held since Dayton announced his original budget plan. “The governor was very open to concerns and our ideas on how to best balance the budget.”

Representative Joe Radinovich, DFL-Crosby, another rookie lawmaker who met with Dayton, said he was thankful that Dayton responded to concerns.

“As he has been through the entire budget process, Governor Dayton was open and receptive to input and new ideas relayed to me by my constituents,” Radinovich said. “Now the Legislature will be putting together a budget proposal and I will work to incorporate the priorities I’ve heard from constituents: investments in education and our future, a budget balanced honestly and without gimmicks, and a budget that keeps Minnesota economically competitive and allows our businesses to succeed.”

House Speaker Paul Thissen, DFL-Minneapolis, said the Dayton business tax plan never had a chance to pass.

Thissen refused to say what he wants in a new budget plan other than continuing support on raising taxes on the state’s highest earners.

The Chamber of Commerce and Republicans say that would hurt business.

There was speculation that when Dayton dropped his business sales tax plan that he no longer would have enough money to fund a $500-per-homeowner property tax refund he sought.

Dayton spokeswoman Katharine Tinucci said that she expects him to drop his clothing sales tax request when he announces budget changes.

The income tax increase is expected to bring in an extra $1.1 billion and Dayton’s original sales taxes changes would result in a $2 billion net revenue increase.

In his $38 billion, two-year budget proposal, the first order of business is to plug a $627 million gap (down from $1.1 billion earlier expected).

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.