Photo by Chris Rogers
Service technician Gerry Thrune works on an end bell at Lakore Electric. New state sales taxes on repair labor mean Lakore Electric will have to charge customers an extra $5 per hour in taxes for Thrune's labor.
Businesses, farmers, and smokers are bracing for Minnesota's new taxes. Labor for repairs to business or farm equipment in the Winona area will be 6.8 percent more expensive next month when new sales tax requirements passed by the state legislature in May come into effect. Warehousing and storage of commercial and industrial goods will also become subject to the area's 6.875 percent sales tax next year. Cigarette taxes will increase by $1.60 per pack on July 1 — making cigarettes in Minnesota more expensive than in Wisconsin — and other tobacco products face tax increases as well.
This is bad news for companies and farmers, business owners say. "It will affect farmers greatly," said Ron Olson, general manager of St. Joseph Equipment in Lewiston, of the new sales tax on repairs. Many implements and farm machines are large and complex, labor costs are often in the thousands, and high-end repairs may reach five digits, he explained.
Farmers sell their products in a national market influenced by prices in states that lack such taxes and are therefore more likely to absorb the impact of the tax increases than businesses that can pass on the increased cost of repairs to their customers, Olson noted. "Farmers have enough stress in their lives and stuff that is beyond their control," he said. "It's just wrong; it's robbery."
"Labor is a big part of a repair," said Lakore Electric owner Joe Gale. Gale's shop performs repairs to electric motors, fans, and other equipment for various manufacturers in town. Now he will be forced to charge his customers over five dollars more per hour for labor sales tax. "We're going to lose some repairs because there are some repairs that are borderline. 'Do I fix or don't I fix it?'" he predicted. The five-dollars-per-hour increase will be enough to tip the scales towards buying a new machine in some cases, Gale said.
However, the primary impact will be on the customers who pay the labor sales tax, Gale acknowledged. Tom Gibson of Whetstone Machine Company brings in equipment for repair at Lakore Electric regularly. "Ultimately the only people who pay taxes are the users," Gibson said. "It will harm the individual much more than the business," Gale agreed. "[The added cost] just gets passed on to customers. Nobody's going to afford [another] seven percent without passing it on."
Gibson joked that Gale had promised he would absorb the new tax burden. In reality the added cost of repairs will increase operational costs for Whetsone Machine Company. Gibson, who makes parts for huge companies like Caterpillar and 3M, has to compete with machine shops across the country and the companies themselves. "They hire me because I can do it cheaper than they can in-house," he explained. A 6.8 percent jump in labor costs might change that, he stated. "It makes us less competitive. The more expensive it is for us to keep our equipment going here, we're at a disadvantage."
Jason Franzwa, an employee at Royal Tobacco in Winona, said customers were planning on stocking up on cigarettes to avoid the new tax. Retailers will be forced to pay taxes on their existing stock after July 1. Franzwa had heard that Wisconsin was also considering raising cigarette tax rates, though the Winona Post was unable to confirm such a discussion in Madison. People are pretty angry about the jump in cigarette prices, but they are not planning to buy in Wisconsin, he said.
Other tax law changes
The Minnesota Department of Revenue is still digesting much of the state's host of tax changes, but outlines of some changes have emerged.
• Homeowners earning more than $105,500 will no longer receive homestead credit property tax refunds starting next year.
• The Department of Revenue will impose sales taxes next month on out-of-state businesses which meet certain requirements and sell goods traditionally or over the internet to Minnesotans and Minnesota businesses. Out-of-state retailers that gross over $10,000 in Minnesota and that have commission-based sales with Minnesota companies or that advertise specifically to Minnesota customers will be subject to sales tax. The Department of Revenue offered an example: Wisconsin furniture makers, with commission-based deals to sell to Minnesota stores, that gross over $10,000 in Minnesota will have to pay Minnesota sales taxes on those sales.
• Starting in July, digital goods such as computer software, digital books, videos, and music (though not photographs) transferred electronically will be subject to Minnesota sales tax. Previously, downloads and other transfers of digital goods were not taxed by Minnesota.
• Durable medical equipment, including blood pressure machines, blood sugar monitors, and defibrillators that are not for home use and not funded by Medicare or Medicaid will be subject to sales tax on July 1, 2013
• Gifts over $14,000 to Minnesota residents will be taxed 10 percent starting next month.
• Taxes on jet fuel sold in Minnesota will increase from five cents to 15 cents next summer.
Details on these and other tax changes are still developing. Keep reading the Winona Post as it follows the new tax laws and their effects on our community.