ST. PAUL, Minn. — Some Minnesota businesses that would be subject to a new sales tax expansion are loudly complaining that it would put them at a competitive disadvantage, and they're trying to get parts of it repealed.
The pending sales tax on warehousing services is a big concern at companies like Distribution Alternatives in Lino Lakes and Lawrence Transportation Company in Red Wing. The new law would extend the 6.875 percent sales tax to them starting in April 2014, and Democratic leaders say that gives lawmakers time to reconsider.
Dave Smith, vice president of Distribution Alternative, a 75-year-old company with 150 employees, said his company hopes the Legislature reverses course but isn't waiting for lawmakers to act.
"We've actually begun the process of looking for facilities in other states," Smith said. "We've actually worked with a real estate agent already. We gave him the list of four or five states to look at."
Eric Lawrence, president and CEO of Lawrence Transportation Company, is rethinking his expansion plans. The company had been looking to build a new warehouse facility in Winona but tapped the brakes on the plan. While the warehousing tax isn't the sole reason for delaying construction, he said it is a major factor.
"I want to grow this business. I want to offer the services and have the space to do it, but it's not worth the risk," he said.
Extending the sales tax to warehousing services is expected to generate nearly $100 million annually for the state. Minnesota would be the first state in the nation with such a tax. It enabled lawmakers to repeal a requirement that cities and counties pay state sales taxes — a cost that got passed on to property taxpayers. It also helped fund an upfront refund for business capital equipment purchases. It was one of two business-to-business services lawmakers opted to tax. The other applies to commercial, electronic and telecommunications repairs. That increase kicks in on July 1 this year.
House Tax Chair Ann Lenczewski said she is willing to revisit the sales tax changes next session. But she wants the Senate to figure out how to plug the roughly $300 million revenue hole that would result from repealing both changes.
"I am not interested in raising any taxes at all for anything," said Lenczewski, DFL-Bloomington. "You don't have to just raise taxes to fix those things. People can cut some things."
Senate Taxes Committee Chairman Rod Skoe, DFL-Clearbrook, said there is a plan to further research the warehouse tax and its possible implications this summer. But he added that repealing or revamping the tax is not on his list of priorities for 2014. Lawmakers who want to see the tax repealed will have to come up with a way to make up for that lost revenue, he said.