Tax bills a clash of style, substance

The bill introductions for the House and Senate tax omnibus bills are comparable to a fireworks show and a museum exhibit. The House Republican tax bill started brightly, with promotion and fanfare. There was a press conference, a colorful chart and several days of hearings conducted by its media-friendly chair Rep. Greg Davids, R-Preston, who wants to cut $2 billion from tax revenues in the next budget, and considerably more in future biennia.

The Senate’s tax bill, a considerably drier document, appeared Monday; there was no press conference, nor even a statement from Senate leaders outlining their priorities. The bill was amended and passed out of its final committee on Tuesday, though that fact could have been lost on anyone who wasn’t paying close attention.

House Republicans say their tax bill, which was scheduled for a floor vote Wednesday, would spur the state economy by putting money back in Minnesotans’ pockets. Senate Taxes Committee chair Sen. Rod Skoe, DFL-Clearbrook, made no such claim about his proposal, describing it as a “balanced” approach that should leave the state in good financial standing in future years.

Sen. Julianne Ortman, R-Chanhassen, pushed back, saying Democrats had eschewed the chance for substantive tax relief, and called a central plank of the DFL bill “just a shift,” and one that the affected principals had not even requested. Skoe gave Ortman the last word, and replied to her argument by simply moving his bill, which passed on an 8-to-5 party-line vote.

The bill contains a total of $460 million in tax reductions, though $222 million of that figure stems from the undoing of a shift in payment dates for local governments. The provision, recommended by Senate Majority Leader Tom Bakk, would move that revenue from the next budget to future years, and would end collections that had initially been used to leave the state with a balanced bottom line.

Other major pieces of the Senate bill include:

• An expansion of the state’s definition of property taxes to include all holdings of railroad companies, which are currently exempt; critics of that measure say it is illegal under federal law, and will lead to a lawsuit.
• Some $24 million in credits for businesses that hire previously unemployed veterans, starting in fiscal year 2017.
• Another $21 million for local government aid (LGA) funds in 2017, and $25 million for county program aid (CPA).
• An expansion of the existing childcare credit for working parents, at a cost of under $12 million in state revenue.

The last measure is the Senate’s smaller alternative version of Gov. Mark Dayton’s call to help working families. Dayton’s much broader expansion of the childcare credit would cost nearly $175 million in lost revenue over the next biennium, and the expense would continue to rise each successive year.

The hearing lapsed into a regular pattern, with business lobbyists complimenting some pieces of the bill, but largely lamenting others. After their testimony, Skoe almost invariably explained or reminded members why the bill had taken its current shape.

Several corporate lobbyists spoke out against proposed changes to the state’s commercial-industrial property tax, saying it would only serve to drive up an excise where Minnesota already ranks among the highest-taxing states in the nation. Under Skoe’s bill, property taxes on business holdings would increase to 1.55 percent for the first $150,000 of value, and 2.1 percent for the remaining market value. Those are relatively incremental hikes from the current rates, but would amount to tens or hundreds of millions in new taxes for large property owners.

Quinn Cheney, a lobbyist for the Commercial Real Estate Development Association (NAIOP), said the new taxes would ultimately be passed along to renters, adding that built-in costs related to property taxes already make up an average of 25 percent of lease agreements.

“There’s been a lot of discussion in the past about who pays (commercial property taxes),” Cheney said. “In most cases, it’s the tenant.”

Bakk, himself a former taxes committee chair, said the property tax changes are a first attempt to “unravel” the statewide general levy, which is due to decrease slightly under the tax bill.

“It’s not fair to shift that burden … onto homeowners and other classes of property,” Bakk said, adding that, aside from railroad properties, “every class of property” would pay less under the bill.

Sen. Paul Gazelka, R-Nisswa, offered an amendment to eliminate the classification changes, though Skoe warned doing so would “raise havoc” with the bill’s bottom-line figures. The amendment was defeated, but undoubtedly portends a fight that will divide the House and Senate during the conference committee. The House tax bill would phase out the commercial-industrial tax altogether, with a $453 million reduction in the coming biennium, and a $1 billion cut in the 2018-19 “tails budget.”

The railroad property tax provision was the subject of highly critical testimony from Alec Vincent, a lobbyist for BNSF rail lines, who warned committee members that personal property of railroads is exempt under federal law. Attempting to tax those holdings would be in “direct violation” of that statute and would put taxpayers at risk of paying back railroad companies in the event of a lawsuit.

Skoe opted not to respond to the threat of litigation, and, in conference committee, will have a negotiating partner in the governor’s administration. Dayton’s budget calls for a different method of taxing rail property, but would raise excises by a total of $90 million during the next biennium. Both the Senate and the governor intend to use new revenues to pay for railroad safety measures and inspections.