Minnesota Lawyer
David Hann
Ann Rest
Just a week removed from the official close of this year’s legislative action, some Minnesota lawmakers are already mapping out a renewed push for tax cuts in 2016.
Tax bills from the House and Senate fizzled last month, casualties of a political firestorm that flared up mostly around transportation funding. Both tax proposals, particularly the House bill, included some of the biggest tax cuts for businesses to hit the Legislature in years.
National surveys routinely ding Minnesota’s tax structure, ranking it among the toughest on businesses. The Minnesota Chamber of Commerce and other groups spent the last several months pushing legislators to scale down taxes.
Gov. Mark Dayton sidelined tax issues for the special session, dousing hopes for business tax relief this year. But Senate Majority Leader Tom Bakk, DFL-Virginia, pledged to take up tax legislation next year – a bargaining chip that got Republicans to sign onto a special-session environment and agriculture budget bill.
The agreement didn’t come with promises for business tax cuts and DFLers were planning to tackle a tax bill anyway, Sen. Ann Rest, DFL-New Hope and vice chair of the Tax Committee, said Monday.
But Senate Minority Leader David Hann, R-Eden Prairie, said in an interview the agreement will likely finesse Senate tax legislation with “significantly higher” tax reductions for the state’s businesses and individual residents compared to last session’s proposal.
This year’s Senate pitch would have downgraded the state general levy, affecting business properties, by $51 million in 2016.
“We talked about some ideas to make that a much, much larger number,” Hann said. “This is a bipartisan effort to address some things that need to be done to make our economy more attractive for investment and growth.”
Hann declined to say exactly what’s on the table. But in the House, Rep. Greg Davids, the tax committee’s outspoken leader, spelled out his vision for tax legislation.
Davids, R-Preston, ignited regular-session debate with a framework that would have phased out the state property tax levy, a weight on commercial and industrial properties. That plan, derided by critics for cutting out a significant revenue feeder, would have started with exemptions on the first $500,000 in property value.
But Davids has backed off some of those goals. Last session’s $1.9 billion surplus shrank after special-session budget bills, so the state probably won’t have enough cash to support a complete business property tax rollback, he said in an interview.
Still, with reserves that could top $1 billion heading into the 2016 session, Davids said there’s room for exemptions on the first $300,000 to $500,000 in value for commercial and industrial sites.
He stuck by other aspects of the legislation, including eliminating an automatic annual inflator that has driven the state general tax target from about $580 million when it took effect in 2002 to around $850 million today.
State law requires commercial and industrial properties to kick in roughly 95 percent of that cost. Taxes on cabins and recreational properties cover the rest.
“If we go down to $300,000 to $500,000 [for exemptions], part of the deal has to be that the inflator is gone,” Davids said.
So far the prospect of a major tax reduction, particularly for businesses, has met with a chorus of opposition from some lawmakers – primarily DFLers, including Dayton.
Rest predicted the same tensions would flare in 2016. If fresh legislation doesn’t include a hotly debated gas tax to fund transportation projects, she said, the tax billwould likely walk back the tax reductions on the table last session.
“My guess at this point is that a tax bill will look very different [from 2015],” Rest said. “Reducing the statewide business property tax – it’s not that it won’t happen to some degree, but it’s not going to be the only focus and maybe not even a major focus.”
Meanwhile, business groups across the state have shown virtually universal support.
Beth Strinden Kadoun, legislative director for the Minnesota Chamber of Commerce, advocated for tax relief this year and said the chamber will continue its push until it happens. But it’ll be a tougher sell after special-session budget bills trimmed the state’s cash reserves.
“We’ll be advocating for those reductions in the 2016 session and we think we’re well-positioned to have some success,” she said. “It will be harder, but if we can get the inflator removed and a small reduction in the level, that would make progress for the state’s business climate.”
Business leaders statewide rallied around the cause, but some groups worry a blanket tax-cut proposal could shortchange certain segments of the marketplace. Small business owners, for example, already get squeezed out by bigger players, said Audrey Britton, a spokeswoman for nonprofit Small Business Minnesota.
“That has tax implications, when legislators don’t understand what small business in Minnesota looks like,” Britton said. “Their tax policy is often not reflective of what’s actually going on.”
Though lawmakers have quietly kicked off preliminary discussions to lay the foundation for the next round of tax proposals, it will be months – after the next session begins in March – before they settle terms.
After that, legislators expect fierce debates. Next year’s elections will likely draw lawmakers across the board deeper into the tax discussion. Loudly supporting or decrying tax cuts are both well-worn campaign plays.
“This year was the year of the budgets for school districts and nursing homes,” Davids said. “Next year will be the year of the tax bill.”
