Minnesota Governor Mark Dayton released the 2014-2015 biennium budget and tax plan last week, stirring up controversy with a proposal that would expand the state sales tax to more goods and services. Legislatures convened earlier this week to scrutinize the governor’s plan to address the $1.1 billion deficit.
The tax plan proposes to reduce the current sales tax from 6.8 percent to 5.5 percent, dropping Minnesota from the 7th highest sales tax in the country to 27th. However, while the sales tax would be lowered, goods and services including clothing, hair salons, tattoos, veterinary visits, even some legal fees, would be taxed, as well as a steep increase in cigarette taxes.
While Winona Area Chamber of Commerce President Della Schmidt said a conversation regarding a statewide tax system overhaul is long overdue, she said the plan has “gone too far.”
“Much of what [Governor Dayton] is proposing is actually a tax on small businesses, rather than a tax based on individual consumer habits,” Schmidt said. “It’s going to end up hitting small businesses who are going to end up raising prices to offset the taxes.”
Schmidt added that many people in the Winona area choose to shop locally rather than drive to Wisconsin where they must pay a sales tax, and Amy Marks, owner of the downtown retail store Pretty Things, agreed.
Winona in the summer is alive with hundreds of thousands of tourists who travel from all parts of the country for the many local festivals and outdoor adventures. When those tourists have downtime, Marks said, they often visit her store. She fears that if the tax plan passes as presented, the added clothing tax could be detrimental to her business.
“I don’t know why [Governor Dayton] wants to stick [the sales tax] on the small businesses who are just trying to make it,” Marks said. “The tax could divert a lot of our business elsewhere, such as online, rather than shoppers spending their money here at a store that supports local businesses and gives back to the community.”
Marks said she is was frustrated with the fact that consumers choose online shopping over spending local dollars at local businesses.
However, consumers who shop online could also see an increase in price if an Internet tax is passed. Dubbed the “Amazon tax,” Dayton is planning to tax Internet purchases that originate in Minnesota. If the Internet sales tax passes, shoppers could choose to forgo buying Minnesota-based online products and the state could see a major decline in online sales.
Minnesota is one of just five states in the country where clothing is currently exempt from sales tax, including New Jersey, Pennsylvania, Rhode Island, and Vermont.
Another aspect of the budget that legislators recently questioned is the proposed plan to raise taxes on cigarettes by 94 cents per pack. While Dayton said he was reluctant to raise the tax, he said he did recognize the fact that increased cigarette taxes have shown to reduce the number of smokers.
“I do have concerns with this aspect of the plan because it is a very regressive tax that seems to be a pretty significant increase all in one shot,” said Senator Jeremy Miller R-Winona.
Miller said while he doesn’t encourage smoking, the “aggressive” tax increase would hit lower and middle income families the hardest.
Other goods and services
Gov. Dayton has proposed taxing several other items, including over-the-counter drugs, personal services such as those provided by hair salons and tattoo shops, auto repair, and veterinary services.
For Companion Animal Care Center owner Dr. Ken Chaffin, the added tax, he said, would hinder business growth in Winona.
“It’s hard enough to have a veterinary business in this environment, but I think the tax would discourage people from hiring workers and keeping business growing in America,” Chaffin said. He added that while some consumers see animal toys, collars, and treats as luxury items, the tax could contribute to a decline in sales.
“This tax raises concerns for not only the local businesses, but for local families as well,” Miller said. “I’m concerned about the future of the business-to-business transactions. Most other states don’t have a sales tax on those kinds of transactions, and I think with the plan that Dayton is proposing it would have a negative impact on Minnesota businesses. Frankly, it would make business less competitive.”
In the coming months, the legislature will be reviewing each facet of the proposed budget and tax plan. Schmidt said while the plan is still in the conversation stage, she is “delighted the conversation has begun.”
“I am certain that whatever final tax plan is eventually passed, it will not be 100 percent of the Dayton plan as presented,” Schmidt said.
For the complete budget and tax plan proposal, visit Governor Dayton’s website. http://mn.gov/governor/budget/