As the Minnesota Legislature prepares to reconvene on Feb. 25, a top priority for the commercial real estate industry will be to do away with a controversial business-to-business sales tax on commercial warehousing services, instituted as part of last year’s tax bill.
The industry’s position jibes with the objectives of Gov. Mark Dayton, who seeks to repeal the tax. The sector also supports his push to make state government more efficient and scrub the books of unnecessary and redundant laws.
As in previous sessions, the real estate industry says it is looking to help both itself and the state stay competitive by reducing the costs of taxes and regulations, which are passed along to tenants in rents. A rebounding economy has resulted in a projected state budget surplus of $825 million after subtracting money borrowed from public schools, and how those funds will be put to use will likely form the backdrop of the tax debate.
The projected surplus one is of the industry’s main arguments for repealing the warehousing sales tax, which, along with new taxes on business equipment repair and purchases of telecommunications equipment, were passed by the DFL-controlled Legislature as part of last year’s budget deal.
The warehousing tax, projected to generate $95 million in the 2014-15 biennium, is set to kick off in April 1, and if not repealed early in the session could make the difference between a profit and a loss this year for warehousers, said Mark Nordland, Minnesota chapter president of NAIOP, the commercial real estate development association.
“This is absolutely putting us at a competitive disadvantage with just about the entire rest of the country,” he said. “There are just a couple of other states that have a tax like that. It’s really just singling out that particular industry.”
Warehouse owners, who are currently preparing their bids to corporate customers for the coming year as contracts expire, lack clarity on whether or not to include the tax. If they don’t include it and it isn’t repealed, they’ll have to service their customers at a loss, NAIOP warned.
In a highly mobile business such as logistics, customers can easily move their goods to warehouse space in neighboring states.
Dayton has said in recent weeks that he will seek the repeal of all three business-to-business taxes early in the session, but Senate leaders haven’t made it a priority.
Nordland said NAIOP’s other main goal this session is to once again seek the passage of a “transparency” law that would require local governments to publish in a standardized, easy-to-understand format how they spend property taxes by categories, such as wages, employee benefits and debt service.
This idea has encountered pushback from the League of Minnesota Cities, which has labeled it an unfunded mandate at a time when state aid to cities has taken big hits, but Nordland contends that pilot projects in Dakota County and the city of Edina have shown it can be done without undue burdens.
Meanwhile, the main legislative priority this session for the St. Paul Building Owners and Managers Association is unreserved backing for Dayton’s efforts to reform and streamline state government, said Joe Spartz, the group’s president.
“We’re really supporting the governor’s call for greater innovation in how state government is run and make its processes more efficient,” he said.
Don Jacobson is a St. Paul-based freelance writer and former editor of the Minnesota Real Estate Journal. He has covered Twin Cities commercial real estate for about a decade.