$1.9B surplus revives clamor for business tax cuts

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The Minnesota Chamber of Commerce united with more than 70 other business groups from around the state to advocate for tax cuts after officials unveiled a projected $1.87 billion surplus heading into the next legislative session.

At least one commercial real estate trade group, NAIOP Minnesota, joined the renewed clamor for tax relief this week after a bill that promised steep tax cuts collapsed earlier this year — a casualty of a fiery debate over transportation funding and several now-resolved budget bills.

Proposals last year in both the House and Senate included landmark business tax relief. Some lawmakers got started on new legislation soon after the last session ended, and legislators on both sides of the aisle forecast healthy prospects for tax legislation after they return to the Capitol in March.

Exactly how tax legislation could shake out, though, remains murky.

The Minnesota Chamber, the state’s most visible business advocacy organization, put tax cuts at the top of its legislative priority list heading into 2016. Doug Loon, who heads the group, pointed to the state’s strong economy but said lightening businesses’ tax burden would ensure Minnesota’s competitiveness going forward.

“Minnesota is a great place to live and work, but businesses are challenged as their costs and regulations continue to worsen,” he said. “The budget surplus provides an opportunity to provide business tax relief and invest in key infrastructure needs.”

With the state’s budget set, business property taxes will return to the spotlight.

A budget surplus last session provided a springboard for talks set to continue this session over some of the most expansive tax cuts to hit the Legislature in years, including rolling back a state tax levy that includes an automatic annual inflator that raises the general tax target each year.

State law requires commercial and industrial properties to cover roughly 95 percent of that cost, with cabin and recreational property owners covering the rest. The inflator drove the state general tax target from about $580 million when it took effect in 2002 to around $850 million last year.

“We think at a minimum what needs to be done is to remove the automatic tax inflator,” said Beth Strinden Kadoun, legislative director for the Minnesota Chamber of Commerce. “We also believe there’s dollars now to actually provide some tax levy reduction.”

The Chamber says knocking down Minnesota’s business property taxes — routinely ranked among the highest in the nation — would allow businesses across the state to reinvest in their employees and operations. Critics say the state depends on that cash flow as an important revenue feeder for other programming.

But with the state’s coffers full, Quinn Cheney, the director of public policy for NAIOP, said the current rates should be a tougher sell. Trimming them would make a big difference, she said, for the small and mid-sized businesses that cover the taxes as part of their rents.

“The tax is not needed when Minnesota’s budget is in such strong shape,” Cheney said. “Property taxes now make up about 25 to 30 percent of a tenant’s lease payments. This tax burden makes it difficult for Minnesota businesses to compete, and to grow and add jobs.”

In an election year — like 2016 — tax cuts often drum up even more attention. Looking to appeal to their constituents, lawmakers often hype up plans to curb taxes. More prominence for tax relief will help, proponents say, but it doesn’t guarantee action.

Plus, a comparatively short session next year will put a squeeze on legislators to hash out details.

“The problem with the election year is it can be more about the political rhetoric versus maybe getting some good, strategic, meaningful tax policy passed,” Strinden Kadoun said.