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Dayton Ready To Drop Minnesota Sales Tax Overhaul

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(credit: CBS)

(credit: CBS)

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ST. PAUL, Minn. (WCCO/AP) — After taking a lot of heat from the business community, Gov. Mark Dayton is dropping one of his sales tax proposals.

Dayton is scrapping his plan to expand the state sales tax to transactions between businesses. His proposal to put a tax on legal, accounting and other services had prompted heavy protests from the business community.

University of Minnesota Economist Laura Kalambokidis says it’s a wise decision.

NewsRadio 830 WCCO’s Steve Murphy Reports

“I know that members of the business community spoke out against it, but there were also quite a few economists who were suggesting this wasn’t a great idea,” said Kalambokidis.

Still unclear is whether Dayton will change his proposal to broaden the state sales tax for retail purchases. He’s promising to unveil revisions to his budget proposal next week.

One thing that’s not expected to go away is Dayton’s call for income tax increases for the wealthy.

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Dayton told a suburban chamber of commerce earlier Friday that a business-to-business component was surely gone. He said later to AP that he doesn’t want consumers to shoulder the new tax load and that leaving businesses out would make the system unfair. In his budget plan, Dayton had used the broader tax to drop the underlying tax rate from 6.875 percent to 5.5 percent.

House Speaker Paul Thissen commended Dayton for moving off a proposal that many in his own party saw as problematic. Thissen, a Minneapolis Democrat, said he didn’t expect Dayton’s sales tax plan would have survived the House.

Dayton is rewriting his budget after a state economic forecast trimmed the state’s projected deficit by more than 40 percent to $627 million for the next two years. But the move to jettison the sales tax is as much a response to its unpopularity, he acknowledged.

“I heard an outpouring of opposition from business people all over the state. They’re very important to our state and to me,” Dayton said. “I listened.”

The Democratic governor was banking on the sales tax expansion to also pay for other program spending and tax breaks. Dayton was aiming to raise more than $2 billion over the next two years by taxing legal, accounting and other services. A proposed sales tax on clothing priced above $100 was also likely to go.

With fewer dollars, Dayton conceded that he’ll have to scale back other ambitions. Chief among them could be his proposed $500 per homeowner property tax rebate, which would have cost the state $1.4 billion in its next budget.

Dayton it was unlikely that some proposals favorable to business would survive, including a reduction in the corporate income tax rate and a freeze on business property tax increases.

“Removing the sales tax expansion removes significant amount of revenue that could be used for lowering the sales tax rate and the property tax rebate, he said.

Dayton said he is standing behind his plan to raise income taxes on the wealthy by adding a new fourth bracket to the tax code. He also said he expected to stick with his proposal to hike cigarette taxes by 94 cents a pack.

(TM and © Copyright 2013 CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2013 CBS Broadcasting Inc. Used under license. All Rights Reserved.This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)

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