The Independence Party candidate may have to look at long-exempt items.
As a candidate for governor, Tom Horner has made no secret of wanting to expand the state sales tax to clothing and some consumer services. But to make his budget plan add up, the Independence Party gubernatorial candidate may have to go considerably broader than the items he's talked about publicly.
He may also have to consider charging sales taxes on a whole menu of long-exempt items: tickets to high school football games, funeral caskets, newspapers, YMCA memberships, feminine hygiene products, even sacramental wine.
Though his campaign has said Horner would leave such detailed decisions to the Legislature, a spokesman acknowledged that a lengthy list of so-called "consumer services" not now subject to a state sales tax might be in play.
Since announcing his plan in August, Horner has offered few specifics as to how he'd get another $1.3 billion out of the state sales tax. In addition to extending the tax to other goods and services, he also would lower the rate -- now at 6.875 percent -- by one percentage point. Counties, however, would be allowed to increase their local sales tax by one-half percentage point to offset Horner's proposed reductions in state aid.
State Revenue Commissioner Ward Einess said his department has never analyzed the Horner plan in depth because it was not given the details needed for such an analysis. But, he said, Horner would have to be "very aggressive" in ending exemptions to reach his goal.
The process "gets real ugly, real fast," Einess said.
For Horner to accomplish his goal, state revenue officials said the sales tax base would have to be expanded by 34 percent.
What might that look like? A Revenue Department analysis shows that expanding the sales tax to everything but groceries, prescription drugs, medical services and devices, motor fuel and most business-to-business services would yield an additional 35 percent.
Horner campaign spokesman Matt Lewis said that as governor, Horner would work with legislators and others on a final list of taxable items and exemptions.
"None of it will be easy," Lewis said. "We know that it's not popular. It's also not popular to cut spending down to the bone."
To give an idea of what it takes to raise money through the sales tax, the biggest ticket item on Horner's list is the state's long-standing sales tax exemption on clothing. Ending that would bring in $562 million over the two-year budget period -- 43 percent of the total needed.
Taxing residential heating fuel -- not currently on Horner's list of exemptions -- would add $123 million annually, according to the state analysis. Charging a state sales tax on admissions to the Minnesota Zoo? Another $378,000 a year. A state sales tax on funeral caskets, urns and burial vaults would produce roughly $4.5 million annually.
Charging state sales taxes on prescription eyeglasses would yield $34 million annually, the state revenue analysis added, while extending the tax to fundraisers by nonprofits would produce $14.1 million a year.
Two potentially big money raisers remain off-limits. Extending the sales tax to prescription drugs would net $444 million a year, but virtually no state taxes such medications. Groceries are the single biggest exemption -- $658 million a year, but many states have dropped taxation of food for home consumption over the years or tax it at a far lower rate.
Although DFLer Mark Dayton and Republican Tom Emmer have gone further in submitting details of their own budget plans for review, Horner's campaign has given some specifics to state officials. But Paul Wilson, who heads the department's tax research division, said he had "not been given enough specifics" from Horner to form a judgment on the overall proposal.
While Dayton and Horner have been critical of Horner's lack of specifics, Lewis said the complaints were an attempt to get Horner to publicly announce before the election which exemptions he would end -- a move Lewis said would likely lead Horner's opponents to cast Horner "as some sort of dictator."
A simple question
Jim Mulder, Horner's running mate, said ending almost any of the exemptions would be controversial. "There will be, I suspect, lobbyists [trying to preserve the exemptions] for all sorts of these proposals," he said. He said that, in looking at the current exemptions, the Horner campaign would ask a simple question: "Do we still want this whole list?"
Mulder said that in his reconfiguring of exemptions "I probably did, oh, 10 different scenarios ... I don't even remember which ones I did. Just testing to see what happens when you go here or go there."
Mulder said that ending the sales tax exemption on clothing would generate significant revenue but likely "engenders the most discussion and probably affects the most people."
As part of his campaign, Horner has floated proposals to help soften the impact on the poor and the middle class, suggesting that a state sales tax on clothing might only start on purchases above $100 or that so-called tax holidays, frequently employed in some states, might be designated.
Einess said the political controversy surrounding any such move shouldn't be underestimated. When a special panel appointed by Gov. Tim Pawlenty studied how to revamp the state tax system, Einess said, the group considered eliminating some sales tax exemptions but was unable to agree on how to do it because "it was so controversial."
Einess said the governor likewise did not favor doing it. "We talked about it," said Einess, who said Pawlenty was opposed to the idea because it would amount to a tax increase. "[And] that just goes against his DNA."
Mike Kaszuba • 651-222-1673