Business-to-business tax was a surprise to Democrats

Minnesota Revenue Commissioner Myron Frans, an even-keeled tax lawyer who also has run a technology-growth business, has some Democrats as well as Republicans fighting the business-to-business taxation portion of the governor's sales-tax overhaul proposal.

Frans disputes that Gov. Mark Dayton's proposed business-to-business sales tax was "a Trojan horse or some idea to divert attention away from other parts of the plan," namely Dayton's pledge to raise the top tax rate to 9.8 percent on joint filers with incomes over $250,000. That's a 2-percentage-point jump above today's top marginal rate.

Dayton wants to broaden Minnesota's regionally high 6.85 percent sales tax and cut it to 5.5 percent by expanding it to consumer and business services and expensive clothing.

Predictably, the Mall of America and many retailers and consumer service providers who don't pay sales taxes are protesting. And Minnesota's sales tax is relatively narrow and complicated, including a tax on dog haircuts but not on people haircuts.

Many Democrats were surprised by Dayton's business-to-business tax proposal, arguing that it disproportionately impacts small businesses that lack law, tax or other departments and will have to pay taxes on services that big companies with in-house departments won't.

The business-to-business tax wasn't included in formal presession presentations by the Dayton administration.

"I was blindsided by the business-tax proposal and it's a bad idea," said Sen. Terri Bonoff, a DFLer from the western suburbs. "Many of my colleagues feel that way."

Dayton's higher income-tax rate that would kick in at $150,000 for individuals has generated far less heat so far than the idea of business-to-business taxes.

The simplest and fairest approach, said Bonoff, would be to lower the sales tax even more, to 3 or 4 percent, and apply it to all consumer purchases of goods and services and use the state income tax credit to protect the working poor from any tax increase. If you want tax simplification, that's it.

Jim Graves, another Democrat and a hotel owner who would benefit from a lower sales tax rate — and no business gets hit harder by sales taxes than the hospitality industry — also opposes the business-to-business tax because of the "pyramiding" effect along the transaction chain to consumers. For him, Dayton's proposal is too complex and doesn't address simplification.

Dayton proposed about $2.5 billion more in spending, about 7 percent, over the next two fiscal years, partly to erase a $1.1 billion deficit and make investments in education and transportation. However, the budget deficit was lowered last week due to higher tax revenue projections. And Dayton has said all along that his proposal was only an opener.

Give Frans, who is a former small-business CEO, credit for heavy lifting on a plan that likely will look a lot different by the end of the session.

"Myron is a great guy, but he's wrong on business-to-business sales tax," said Walter Pickhardt, Frans' former tax partner at Faegre Baker Daniels.

Veteran Twin Cities executive Shaun Nugent has joined Minneapolis-based AllOver Media as chief financial officer, giving the nontraditional advertising operation a savvy voice as it hits the capital markets to enhance its national footprint and bring new out-of-home advertising products to the market.

Nugent has worked for Champps restaurants, Life Time Fitness and Sun Country Airlines, where he was chief executive between 2005 and 2007.

"We've had five acquisitions in two years,'' AllOver CEO Tony Jacobson said. "If we keep up that pace, we need someone like Shaun with his expertise."

AllOver, with $35 million to $40 million in projected sales this year, is best known for advertising at gas pumps, on ice machines and in restrooms. It recently expanded to include door hangers and "check-cash sleeves," the little envelopes filled with cash after a check-cashing transaction.

AllOver, which is moving to larger headquarters in Plymouth in the next three weeks, also hired Korey Wrobleski, most recently of Ceridian, to be its chief revenue officer.

DAVID PHELPS

SHORT TAKES

• My colleagues on the Star Tribune business team learned last week that they've won three 2012 SABEW Awards from the Society of American Business Editors & Writers for the newspaper's coverage of Best Buy. The wins came in three categories: "general excellence," "breaking news" (for coverage about the abrupt departures of Best Buy CEO Brian Dunn and Chairman Richard Schulze) and "features'' (for "Lost Empire,'' an in-depth article about the management-and-board disasters at Best Buy). The SABEW awards are the Oscars of the national business-­journalism trade.

• Supervalu may outsource its 100-person marketing department after it sells most of its languishing retail division, according to talk in the marketing trade.

The company confirmed last week that it's in negotiations with Texas-based Ivie & Associates, a marketing-services company throughout the United States and China that sometimes places its people directly inside client companies.

Supervalu, after it sells Albertsons and several other retailers, is expected to transition "much of its everyday marketing needs" to Ivie, Supervalu said in a statement. The grocery wholesaler had no further comment on the future or number of employees in its corporate marketing department.