What are the forces moving the Minnesota economy? Adam Belz tries to identify the trends and show the connections between Minnesota and the larger U.S. and global economies. You can connect with him on Twitter: @adambelz

Posts about Budget news

Governor's office: B2B tax will not apply to sales outside Minnesota

Posted by: Adam Belz Updated: February 15, 2013 - 11:09 AM

Mark Dayton's office said Friday that his budget's business-to-business sales tax will not apply to goods or services sold outside Minnesota.

The governor's proposal would, however, apply to all purchases by Minnesota companies, including those for goods and services bought from other states.

The budget, meant to wipe out a $1.1 billion projected budget deficit and produce $1.1 billion in funding for schools, would raise $2.2 billion in new revenue by taxing sales between companies.

The tax would put Minnesota in a category with only three other states -- Hawaii, South Dakota and New Mexico -- who have broad sales taxes on professional services. It has drawn the criticism of IT professionals, lawyers, accountants and marketing firms. It has also been embraced by some businesses who already have to charge sales tax.

Dayton's office provided more detail on the proposal ahead of a noon conference call with reporters. If sales received outside Minnesota are not taxable, that undercuts the claim that national law firms and marketing firms will have to leave Minnesota to be competitive.

The governor's team also gave a more detailed list of exemptions, and pointed out that under the proposal, Minnesota's sales tax rate would fall from 7th highest in the nation to 27th. 

Here's the document:

2 15 13 Final Sales Tax Booklet by

B2B sales tax draws "politically astute" foes in Minnesota

Posted by: Adam Belz Updated: February 14, 2013 - 10:39 AM
A marketing pro named Patrick Strother wants to trademark the governor's budget proposal as the StupidTax, and wrote a scathing blog post about it.
 
It's a pointed example of the criticism the business-to-business services tax has received. (Related: At this point the B2B tax is mission-critical for the governor's budget, if the numbers are going to work. The tax raises enough new revenue to erase the projected $1.1 billion budget deficit twice over, allowing for a lower sales tax rate overall and the promised $500 property tax rebate for Minnesota homeowners.)
 
Economic policy and budget details aside, though, Strother's campaign illustrates the type of people who generally lobby hardest against a sales tax on professional services. They are lawyers and accountants, professionals in marketing and advertising, plus the IT and consulting communities, and the media.
 
As John Siegried and Paul Smith put it in a 1991 article in the National Tax Journal, “A tax on business inputs has a very substantial direct impact on a small number of politically astute and sophisticated taxpayers.”
 
In general they have money, political influence, and as Strother illustrates, they know how to communicate.
 
Siegried and Smith were talking about the example of Florida, the last state to pass a sales tax on professional services. It was repealed six months after it went into effect in 1987. 
 
On Tuesday I asked Myron Frans, Minnesota's commissioner of revenue, whether he was cracking under pressure from the powerful lobbies opposed to the tax. He laughed.
 
"We're taking a lot of comments, but that's OK, the debate is important and it's a part of the process," he said. "We're enjoying it as much as you can."
 
UPDATE: Brian Bakst of the AP notes that Strother was a paid consultant for the Minnesota GOP in 2010, earning $30,000 that year. 

 

      

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