Fix For Minn. Budget Woe? End Sales Tax Exemptions

MINNEAPOLIS (AP) — With Minnesota lawmakers staring at a $6.2 billion deficit this session, state Rep. Pat Garofalo knows as well as anyone that balancing the state budget is “going to be tough and it could be ugly.”

So why is the Republican from Farmington introducing a bill that would make things just a tiny bit worse, by exempting animal shelter pets from the statewide sales tax?

“At the end of the day, I like puppies and kitties,” Garofalo said.

His proposal would cost the state only a little money — easily less than a million dollars a year, he estimates. But it would add yet another carve-out to the state’s tapestry of sales tax exemptions, 83 special deals on everything from staples like food and clothes to more oddball exceptions like horses, used motor oil and the machines used to make fake snow at ski hills.

In fact, Minnesota lawmakers could wipe out that $6.2 billion deficit at once if they repealed every single sales tax exemption. Figures from the Department of Revenue show plugging those 83 exemptions would dump — you guessed it — just about $6.2 billion into the state treasury over the next two years. Another $5.3 billion would be up for grabs if lawmakers mustered the political will to apply the sales tax to several dozen services that are also exempt, from hiring lawyers and accountants to paying for funerals and safe deposit box rental.

But it’s easier said than done.

Plenty of state lawmakers and even former governors have tried to pare back the exemptions but run into a political brick wall. Similar efforts to do so in other U.S. states — most have dozens or more exemptions on the books — have failed, too.

“Why is it that, if you’re a tool maker and I own a law firm, your product is taxed and mine is not?” said state Rep. Melissa Hortman, D-Brooklyn Park. “We both drive on the same roads. Our kids go to the same schools. But your business has to take more out of its bottom line than mine does to keep up with the sales tax.”

In 2008, Hortman introduced a bill to eliminate all state sales tax exemptions and correspondingly lower the overall sales tax rate. “I couldn’t even get one co-sponsor,” she said. In 2011, former Gov. Jesse Ventura proposed eliminating some exemptions and bringing down the total rate. It went nowhere, and in 2009 a tax reform commission convened by Gov. Tim Pawlenty offered much the same idea. Nothing came of it.

Last year, independent candidate for governor Tom Horner tried again with a similar proposal in his campaign platform. He finished a distant third. State Sen. Tom Bakk, a failed Democratic candidate for governor last year, got no traction for his proposal to add the sales tax to clothing. That alone would raise about $600 million in 2011-12, but the 43-year-old exemption has proved tenacious in this home to the Mall of America.

Even more costly is the exemption for food, which if taxed would raise nearly $800 million in 2011-12. Lifting the exemption on drugs and medicine would generate $565 million over those two years; adding the sales tax to residential heating fuels, used motor oil, and a small mix of exempt tools and equipment would generate nearly $300 million.

“They don’t get repealed often,” said Carl Davis, senior analyst at the Institute on Taxation and Economic Policy, a Washington-based nonprofit that advocates progressive taxation. “In most cases, exemptions are heavily beneficial to a very interested and vocal minority that is willing to heavily invest in hanging on to them.”

In Rhode Island, new Gov. Lincoln Chaffee has proposed a 1 percent sales tax on items currently exempt from that state’s 7 percent sales tax to help close the budget gap there. In its annual State and Local Tax legislative outlook, the national accounting firm Grant Thornton LLP predicted recently that more states would look to broader sales tax bases as a way to get out of budget jams.

There’s been no such proposal so far in Minnesota, where Democratic Gov. Mark Dayton wants to raise the income tax rate on high earners as his major weapon for fixing the budget. The Legislature’s Republican majority, meanwhile, wants to do it with spending cuts.

But later this week, the Senate Finance and Tax committees will comb through the Department of Revenue’s tax expenditure report, which details the breaks. Sen. Claire Robling, chairwoman of the Finance Committee, said an initial read shocked her — and helped her see an alternative approach to fixing the budget problem.

“We are giving up a ton of revenue here,” said Robling, R-Jordan. “We’re looking for our best bang for the buck, in a time where we really need job creation. Maybe we should be looking at some of these exemptions and asking if they are really bolstering economic growth. If they’re not, maybe something else might be more effective.”


(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

  • GH

    Maybe they should have both the spending cut and the tax hikes. They could even do one better and cut the hand me outs Minnesota is know for. Minnesota could find out what it’s like to actually have extra money for once

  • soapboxgod

    A eliminating sales tax exemptions is only viable if the legislature and the governor are willing to offset those increases with a reduction in income taxes. Dollar devaluation is already having an adverse affect on the cost of food and fuel. Compounding that lower purchasing power with raising the cost of goods even further is yet another recipe for economic disaster.

  • Steve

    Here’s one way to cut the Minnesota budget. Make english the states only language!
    What a waste of monies trying to satisfy everyone that moves to the state. Hennipenn Country has a proposal for all paper work and books to be written in 5 differant languages so it is easier for the Legals and Non Legals Immigrants to understand.
    Don’t these people get it? We are BROKE because of this type of mentality!!!

    One language under GOD!!!

  • RJ

    Why not just stop giving out never ending entitlements to everyone who comes to the state? This state has a serious problem with entitlements and the Somali population is proof of the issue. Their 80-90% unemployment rate in Minnesota is a serious problem. Why would they want to work? They come from a country which has been ravaged by war to our country which allows entitlements until the day they die. Free food, housing, medical…. again, why would they want to work? We need steep limits on entitelments in this state to curb everyone from abusing the system. They were not created to to be forever. Only to help those in a rut to get out of it.

  • donh

    everyone is correct English only you only get an entitlement if you have worked in the state for 1 year make a flat sales tax of 3 percent on everything no exceptions and lower income tax a flat rate of 3 percent no loopholes for any reason

    • donh

      i forgot 1 other thing tell the indians to go smoke a pipe and build a state run casino

  • AK

    Tax religion…make them pay property taxes – AT LEAST.

  • ML

    Perhaps the people involved with money should take the Crown Ministry class and learn how to manage money. The Lord said he would provide all our NEEDS, not WANTS. When people learn how to respect what GOD has given them, then they will respect spending and stop making it out of control. Something very important: stop giving money to people who do not know how to take care of it. Force people to get a job and buy their own needs. Welfare is out of control, providing food stamps, unnecessary financial aide which could save MN a lot of money.

  • slider

    Why is it that NO ONE gets the point that government is TOO BIG, no one is talking cutting, right away the solution is increase taxes to cover the spending… well how about CUTTING spending? I know for a fact there are worthless programs out there that could be and should be cut. Lets get some people with some guts and start cutting!

  • jon

    Start taxing clothing. That would help a lot and would barely affect the people who shop out of necessity vs luxury.

  • K.

    Forget taxing religions……..that’ll never happen. Remember? Separation of church and state? Plus, they do a lot of charity work and you cannot nor should you ever tax charities.

  • j

    yeah, they do a lot of charity work – like bring people into the state to draw off our welfare system so why would anyone want them to pay taxes.

  • Lloyd21

    As nutty as Rep. Hortman usually is, perhaps she stumbled upon something here-start taxing ambulance chasing trial lawyers heavy enough that you put them out of business. Wasn’t Rep. Hortman the one who argued for the gas tax in 2005 saying that “when you bill $195 an hour at the law firm, $50 in gas tax is worth it”? Who is she kidding anyway, she lists her occupation as legal council to her family’s junk yard (that cleaned up with Obama’s “cash for clunkers”). Why don’t you write a bill to tax some of that political federal windfall that fuels your campaign instead of the bread and milk on my table?

blog comments powered by Disqus
Thursday Night Football

Listen Live