Editorial: Put an end to delay in business refunds

Star Tribune

For several months, Minnesota businesses have been receiving what was for many an unexpected advisory that they'd been drafted to help ease state government's money woes.

Beginning Dec. 1 of last year, when they applied for the usual semi-annual refund of the sales taxes they pay when they buy production equipment, they were informed that their refund would be delayed until July 1, the start of the next state fiscal year.

The same letter is being sent to businesses in Minnesota and around the country that overpaid the state's corporate income tax in 2010. They, too, are being told that their refund checks will be in the mail after July 1.

As a result, state government is already holding back $72 million owed businesses since Dec. 1, said state revenue commissioner-designate Myron Frans.

It's on track to keep $206 million out of business hands before the refunds start being issued in July -- unless the Legislature accedes to Gov. Mark Dayton's request this week to end the practice and get the refunds rolling now.

It should. The latest state revenue forecast shows enough money on the fiscal 2011 bottom line to make refund delays unnecessary to keep the current budget balanced.

Then Dayton and the GOP-controlled Legislature should go further.

They should make the sales tax exemption for capital equipment purchases work the same way the exemption of food and clothing works.

Instead of needing to apply for a refund, manufacturers and other eligible businesses should simply not be charged sales tax in the first place when they buy the equipment they use to produce the things they sell.

Getting rid of the refund application would cost the state an estimated $40 million per biennium.

That's money owed to businesses that the state now keeps because some business owners don't know about the refund or don't bother to apply. It shouldn't be hard to find a tax to raise in its place that businesses would find less irksome than filing refund applications has become.

The refund delay that began in December is the latest manifestation of more than 27 years of push-pull at the Capitol between the desire to use a sales tax break to encourage business expansion and the need to keep a volatile state budget and cash flow account in balance (see timeline, above).

The delay was initiated by GOP Gov. Tim Pawlenty as part of his 2009 unallotments. He pushed $86 million in 2011 business refunds forward into fiscal 2012.

In a little-noticed move, the 2010 DFL-controlled Legislature added $150 million to Pawlenty's total, giving permission for some refunds to be held by the state for up to eight months.

That would have amounted, potentially, to $236 million in delayed economic stimulus -- quietly authorized by politicians who at the same time were saying that they wanted nothing more than to hasten economic recovery.

Surprisingly, the Minnesota Chamber of Commerce agreed to the move.

"You have to take some things you don't like to wrap up a budget," explained chamber tax lobbyist Tom Hesse. He added that Dayton's call this week for an end to the refund delays came as "a pleasant surprise."

It's odd that businesses weren't already clamoring for the release of so much of their money. It's odd that they didn't howl at the outset about the precedent that was being set, and that other taxpayer advocacy groups didn't join in.

If a governor can unilaterally delay business refunds without paying a political price, what's to prevent him from doing the same with individual income tax refunds? And how long must a delay last before it gets called by a more accurate name -- a temporary tax increase?

Dayton should buttress his call for an end to the refund delays by also asking the Legislature to eliminate the refund requirement from the capital equipment sales tax exemption.

And Minnesotans should notice that this liberal DFL governor's interest in tax fairness extends to ending a temporary increase on businesses that cannot be considered fair.

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