NEW ULM - The Minnesota Chamber of Commerce pushed hard against Gov. Mark Dayton's proposals for an overhaul of the state tax system on Wednesday during a tour of the state.
Chamber Communication Director Jim Pumarlo said the Chamber expected numerous tax proposals from Dayton this year because he campaigned on items like taxing the top income earners. The Chamber finds the majority of the proposals unacceptable.
"[Dayton's] budget has huge increases in spending and huge increases in taxes. But, we see little reform in either," said Pumarlo.
The Chamber's objections focused on three items: the business-to-business tax, the creation of a fourth tier income tax and a $500 property tax rebate.
On the business-to-business tax, Pumarlo said the Chamber finds it completely objectionable as a " hidden pyramid tax." He said that while Dayton's proposal lowers the overall sales tax from 6.875 to 5.5 percent, businesses will incur all kinds of expense in creating a product. These expenses would be passed onto the product's final cost.
"People will see they are paying the direct sales tax on the items they buy. They may not realize they are also paying for each cost incurred on creating the product along the way, making it more expensive," said Pumarlo.
He said the Chamber is especially concerned about business gain costs because services such as legal advise, accounting, human resources and computer services are needed.
The Chamber also objected to the creation of a fourth tier income tax bracket of top earners, which increases their taxes to 9.85 percent. The main objection is that the tax will cripple the state's ability to attract the top talent. Some small businesses flow their business income through personal income taxes, meaning the tax would take money out of business, he said.
Pumarlo said the Chamber's primary position is to seek a revenue neutral budget that prioritizes all possible spending cuts and efficiencies before reaching for tax increases as a last resort. When asked what the Chamber position on tax fairness would be if Dayton were pushing increased taxes on top earners even under a revenue neutral budget, Pumarlo said the Chamber values competitiveness more.
"[Tax] fairness is really in the eye of the beholder. For example, some folks would say that a fair tax is one where everyone pays the same rate. However, if we want a more progressive income tax system where wealthier pay more than the lower incomes, Minnesota already has one of the top three most progressive income tax structures in the nation, according to data from the Minnesota Center for Fiscal Excellence (formerly Minnesota Taxpayers Association)," said Pumarlo in a follow-up e-mail.
Finally, the Chamber objected to Dayton's proposal of a $500 rebate to all Minnesota homeowners on the property taxes. Pumarlo said property tax relief should be based instead on need. He said that the approach was taken in the 1970s and under Gov. Jesse Ventura, but failed because schools and businesses only saw it as an opening to raise tax levies without negative political consequences.
Pumarlo said the Chamber agreed with some things in the Dayton budget. First, It supports the two-year freeze on statewide businesses' property taxes. Second, it strongly supports collecting sales tax on online purchases. Pumarlo said there are already laws where the items should be taxed, so the emphasis is more of an enforcement issue, He said the biggest problem with not strongly pursing taxes for online sales is that Minnesota's storefront business end up being show rooms for purchases that are ultimately made online. He said the problem creates an unfair disadvantage to brick-and-mortar stores.
Finally, the Chamber actually has no position on the any "sin tax," particularly Dayton's proposal to increase taxes on cigarette packs by 94 cents.
Pumarlo said the Chamber plans to see how DFL legislators react to Dayton's proposals in the coming weeks before moving forward its own plans.
(Josh Moniz can be e-mailed at email@example.com)