Tucked into the tax bill that cleared the Legislature before its midnight adjournment is a measure to compel Amazon and a few other online retailers to apply the state's 6.85 percent sales tax to consumer purchases, just as Minnesota-based retailers must do.
The "e-fairness" requirement, known in tax policy parlance as the affiliate nexus redefinition, treats online retailers with affiliates in Minnesota as if those affiliates were the retailer itself. That change has long been sought by the state's retailers, including Target and Best Buy.
That generates a modest $9.7 million increase in the state's 2014-15 budget. It's also as far as the courts have allowed states to go in collecting sales taxes from online retailers based elsewhere. But Congress could change that. On May 6, the U.S. Senate gave bipartisan approval to a bill that would allow states to impose their sales taxes on all online purchases, regardless of the seller's location. The Republican-controlled U.S. House is cool to that measure, but its members are under heavy pressure from bricks-and-mortar retailers to change their minds.
If that should happen, Minnesota is ready. The tax bill that the Legislature sent to Gov. Mark Dayton includes language that would allow the state to quickly begin collecting online sales taxes after a congressional green light. That's for good reason: The state stands to gain a whopping $400 million per year if it could tax all online retail sales.
Should that happen, it will reopen the sales tax reform question that was shelved at the end of the 2013 session. An additional $800 million in sales tax revenue per biennium would allow his state to rely more on the sales tax, and less on competitively troublesome income taxes, without the political angst that rises at any suggestion of applying the sales tax to clothing and services.
State Revenue Commissioner Myron Frans observed recently that tax reform is more easily accomplished when the state has a surplus. I'm not sure. Surpluses ramp up political demands for tax cuts, not reform. But I am sure that an online sales tax windfall courtesy of e-fairness would give legislators and the governor fresh reason to consider ways to make Minnesota's taxes more competitive.
It's hard to remember what the Legislature did before the top item on its yearly agenda was "close the budget gap" or "recover from the last deficit." Those have been must-do items in all but one of the last 12 years. This year's Legislature was obliged to close a $627 million gap in 2014-15.
The budget enacted by the 2013 Legislature will change that -- or so said Senate DFL Majority Leader Tom Bakk in a session post-mortem meeting with reporters Tuesday.
"We're leaving to the next Legislature, after the 2014 election, no crisis to manage. There's a balanced budget for the next biennium," Bakk said. "It's very very difficult to make good decisions about the future, and the kind of investments that are going to move our state forward, if the first thing you have to do is get your arms around the deficit and another crisis."
Republican legislators aren't ready to credit the DFLers for a budget that stays balanced through 2016, as Bakk boasts. They argue that the tax increases that DFLers say set the budget finally to rights will damage the economy enough to keep the state's red ink coming.
But if Bakk's analysis proves correct, Minnesota is in for a span of lawmaking years that a majority of today's legislators have never experienced. Few of today's legislators were serving during the late 1990s, when the big debate each session was whether to spend more on education and infrastructure or "give it all back," as Gov. Jesse Ventura had promised in his 1998 campaign.
The choices made in those years don't look good in hindsight. Taxes were cut too deeply in 1999-2001, and spending was increased in a way that demanded more in future years. Those decisions contributed considerably to the deficits that followed.
Then-Senate Majority Leader Roger Moe told me recently that he wishes he would have pushed harder then to use surpluses for one-time spending, say on transit or infrastructure improvements, or for endowments to serve good public purposes, say preschool scholarships or medical education and research. Moe was at the Capitol frequently this session. If Bakk's fiscal forecast is borne out in 2015, I hope Moe is on hand then too.
"They own the place," GOP state Rep. Pat Garofalo sarcastically said of labor unions Monday, as pro-union forces loudly celebrated the House's 68-66 vote to authorize state-paid child care providers and personal care attendants to organize a union.
The contentious unionization issue was indeed a big-deal, long-sought victory for the state's union movement. It's seen as a boon to the public employees' union AFSCME, which will seek to organize providers of state-subsidized child care, and SEIU, the service workers union expected to organize state-paid providers of personal care services to the disabled. .
But in other respects, the DFL-controlled Legislature left plenty of union agenda items undone.
A minimum wage increase that was among the first bills introduced didn't cross the session's finish line by 11:59 p.m. Monday. A conference committee couldn't find an agreeable way to split the $1.75/hour difference between the wage floors preferred by the House ($9.50) and the Senate ($7.75).
My guess is that there are few labor negotiators in Minnesota today who wish they could school those conferees in the art of deal-making. This is a situation in which a small gain would have been better than another year of delay.
Two measures keenly desired by labor's construction trades also stalled. An $800 million bonding package shriveled to $176 million, denying a green light to scores of higher education buildings and infrastructure projects around the state. And transportation funding was reduced to what was called a "lights-on" bill for MnDOT. No new revenue was supplied to jumpstart highway improvements or transit construction.
My hunch is that the union-backed measures that were not accomplished enjoy more public backing than the one that was. I'd further note that DFL politicians appear similarly allied, and beholden to, unions of all stripes. Choosing to smile on the AFSCME/SEIU request and not on the others strikes me as a choice that DFL legislators will be asked to explain, maybe again and again.
The 108-year-old State Capitol was one of Minnesota’s first public buildings to be illuminated entirely with electric lights. I’ve always thought that was done to showcase this state’s embrace of technological progress. But maybe the legislators who approved that lighting design aimed to make late-night lawmaking easier on the eyes.
That thought occurred to me Sunday afternoon as I watched bleary-eyed House members struggle with the after-effects of the all-nighter they pulled Saturday night and early Sunday, debating a highly contentious child care unionization bill.
It was only the second time all year that the House remained in session after midnight. The first episode was occasioned by the bill to create a state-run health care exchange. That bill and Sunday morning's had in common fierce partisan opposition, of the sort that inspires a long list of amendments intended to foil the bill's intent.
But late-night lawmaking is a time-honored tradition at the Capitol, whether the place is in one party's hands or two. In situations involving group dynamics, negotiations and a deadline, somebody inevitably seeks to use the clock as an ally -- or a weapon -- with which to get his or her way.
The child care/personal care attendants' unionization bill provoked a Senate all-nighter last Wednesday-Thursday. Prolonging debate with a plethora of amendments seemed to be the GOP minority's tool. Later Thursday, Senate Republican leaders accused the DFL majority of mismanaging the flow of legislation. They denied that they had anything to do with theproblem. "We are not filibustering. We're trying to do our elected job," said Senate GOP leader David Hann.
The lawmaking pace has picked up considerably since then. By Sunday afternoon, worries had dissolved that the year's must-do budget business would not be done by 12 a.m. Tuesday, when the constitutionally permissible time for the regular session runs out. But this year -- like most session years since 1905 -- the session will end with a hefty light bill. At least it isn't "midnight oil."
"We don't need to do a bonding bill this year," Senate Minority Leader David Hann said Sunday at the Capitol. If the walls around him could speak, I think they would have retorted, "Says who?"
Many worthy projects are on this year's bonding wish list. But the one that's been cited all year long as most urgent and most deserving is the 108-year-old Capitol itself, which is now in year one of a four-year restoration project.
Keeping it on schedule requires a bond authorization or cash appropriation of at least $109 million this year. The Senate's offer of $30 million in cash in the tax bill isn't sufficient to stay on track.
At the request of one of the Capitol's most loyal legislators, GOP Rep. Dean Urdahl, the state Administration Department prepared a summary of the implications for the Capitol project if no bonding bill is enacted.
"Work would be suspended, except for stone repairs, window replacement and French door restoration scheduled for 2013. The remainder of the project would be mothballed and predesign and design work would be shelved," said a memo from Wayne Waslaski, the department's senior director for real estate and construction services. "The project will go into asset preservation mode. Greater problems will have to be repaired in a piecemeal manner, at a higher cost and disruption to the tenants."
With construction prices forecast to rise 3 percent to 4 percent per year and the building's deterioration progressing, delay would run up the ultimate pricetag. Urdahl estimated that a two-year delay would add $24 million more to what is now a $240 million project. If design work would need redoing when the project recommences, Urdahl's figure may be low.
Details were scarce in the broad-brush biennial budget outline that Gov. Mark Dayton and DFL legislative leaders painted Sunday afternoon. But when Senate majority leader Tom Bakk said the plan involves "significant sales tax reform" and Dayton added that consumers would not see the sales taxes applied to clothing or personal services such as haircuts, business lobbyists took notice.
Sales tax reform that doesn't involve consumers must involve businesses. Bakk acknowledged that ideas for taxing some currently exempt purchases made by businesses are again under discussion.
That's the category of tax changes that Dayton proposed in January, then withdrew in March after taking heavy fire from affected businesses.
But then, Dayton was out to raise more than $2 billion from business services sales taxes, and wanted to reduce the overall state sales tax from 6.875 percent to 5.5 percent. The leaders' charge to the House-Senate tax conference committee is much more modest. The thought of reducing the sales tax rate apparently has been dropped.
Instead, the aim is to raise enough additional sales tax revenue to allow some now-taxable purchases to be exempted.
"Some powerful economic incentives" could be provided in that fashion, Bakk said. While he did not spell out what incentives he has in mind, a sales tax exemption for construction materials has been part of the Legislature's discussion about how to support a major expansion by the Mayo Clinic and a new research lab at 3M.
In addition, new sales tax revenue might be used to allow the state to relieve local governments from paying sales taxes. That would in turn result in property tax relief in which businesses and homeowners would share.
But if Dayton and the DFL-controlled Legislature is again targeting business services for taxation, I'd bet that the thought of somewhat lower property taxes won't mollify the affected businesses.