Minnesotans, prepare to dig deeper into your pocketbooks following the actions of the 2013 Legislature. Companies are being asked to pay a very high premium for the privilege of doing business in Minnesota. Many changes in tax law took effect Monday and many are retroactive to Jan. 1. These new taxes include individual income tax, corporate taxes, sales taxes, estate and gift taxes and cigarette taxes.
The pyramid effect of these higher — and often hidden costs — is certain to be felt across the state and negatively impact Minnesota economy and business competitiveness. The Minnesota Chamber of Commerce seeks to lower all of these costs. We support the call for a special session for immediate repeal of the business-to-business taxes (B2B) on:
- Labor service charges for repair and maintenance of business equipment and machines, including farm equipment, effective Monday.
- Purchases of telecommunications equipment by telecommunications providers, effective Monday.
- Storage and warehousing services of business-related goods, effective April 1, 2014.
Minnesota businesses will pay the 6.875 percent state sales tax, plus any local sales tax, on these services if you hire the work out. The cost especially hits small and midsize businesses that don’t have the in-house expertise.
The impact, without a doubt, will take a toll. Affected companies will be placed at an extreme disadvantage with their peers in other states and nations. Consumers will pay the price through higher costs for goods and services; employees will feel the impact through lower wages and lost jobs.
B2B taxes are not only misguided fiscal policy, but they are at cross-purposes with legislative goals to promote economic growth. Consider these actions taken by the 2013 Legislature:
- A Job Creation Fund of $24 million was created to encourage industries — including storage and warehouse services and the businesses that use them — to locate in Minnesota. The B2B tax puts this industry at an extreme disadvantage, and without a healthy warehousing industry, Minnesota is less attractive for the businesses that require this service.
- Purchases of capital equipment will now be exempt from the sales tax rather than forcing companies to apply for tax refunds. That’s good. But now labor costs for repairing and maintaining the equipment are subject to sales tax.
- The governor’s Broadband Task Force recommended keeping the current exemption, and the Legislature allocated $500,000 to create a broadband development office to encourage investment of high-tech equipment and capacity in Minnesota. Yet the B2B tax was extended to telecommunications equipment, making it more expensive for providers to expand the state’s telecommunications infrastructure.
The fact is, we did not even need the new tax to solve the budget. The Legislature faced a $627 million short-term problem and solved it by raising $2.3 billion in taxes. There is plenty of opportunity for the governor and lawmakers to correct their misguided actions by focusing on spending reductions.
Owners and managers are tired of hearing our leaders promote a “pro-jobs” agenda, then pass “anti-business” legislation. In contrast, neighboring states are knocking on our doors, saying, “We are open for business” and backing it up with their policy decisions. These high and punitive taxes are making it harder and harder for our Minnesota businesses to ignore the welcoming invitations from other states. Let’s do the right thing and repeal these B2B taxes before we lose important businesses and jobs.
David Olson is president of the Minnesota Chamber of Commerce – www.mnchamber.com.