Two lawmakers talk tax-policy challenges in virtual forum

Listen to this article

A virtual panel held by Fredrikson & Byron, P.A. on Wednesday discussed challenges facing state tax laws, as well as expected minimal changes to these laws.

The ongoing COVID-19 pandemic has stressed Minnesota’s tax system and raised questions about out-of-state businesses tapping into Minnesota’s educated workforce, which experts said require a balancing act when addressing.

Rep. Paul Marquart, DFL-Dilworth, chair of the House committee on taxes, said lawmakers are balancing several interests when making tax policy changes.

“Anything we do, we have to make sure that we are staying competitive,” he said.

The state needs to ensure taxes are competitive for businesses, while continuing to support services like education, infrastructure and secure revenue systems with tax revenue, Marquart said.

“All of those things play into why people would want to live here but also want to operate a business here,” Marquart said.

Rep. Pat Garofalo, R-Farmington, who’s a member of the House taxes committee, said it will be difficult to pursue standard revenue collections this year because of the pandemic.

Executive orders that close businesses in an effort to curb the pandemic spread are in “direct conflict” with requiring those businesses to pay taxes, he said.

“I’m hoping that the Walz administration maintains that flexibility, and differs on the side of giving taxpayers more flexibility with regards to not only just deferral of payments, but also … of penalties and base penalties and abatements,” Garofalo said.

In addition to the pandemic, other external factors like the civil unrest following the death of George Floyd and upcoming trials, as well as the state’s likely loss of a congressional seat when census results are released, can impact decision-making on taxes. A cultural shift to cold weather intolerance has also caused a migration to the southern and eastern parts of the U.S., he said.

And any decisions they make about tax law will either curb or accelerate these trends.

“What do we do to balance the stability as well as be a pro-growth tax code going forward?” Garofalo said.

Still, he said he expects there will be minimal statutory changes made this year.

Gov. Tim Walz has proposed increasing taxes on the state’s largest companies and wealthiest residents to help fill an expected $1.28 billion shortfall in the next two-year budget, according to Associated Press reporting.

The pandemic-influenced increase in remote workers is also on the minds of lawmakers this year, panelists said.

Minnesota doesn’t have uniform labor standards, Garofalo said, because cities like Minneapolis and St. Paul have passed their own employer ordinances. This results in companies beholden to city ordinances, he said.

“[We need to] make sure that we are clarifying that these municipal ordinances — which I’m most concerned about right now — are not expanded to businesses to employers that are outside of those individuals cities’ jurisdictions,” he said.

Out-of-state businesses have also been able to tap into Minnesota’s “highly productive and educated workforce” without paying for it, Garofalo said. The businesses headquartered outside of the state that use Minnesota’s talent present “an issue … [and] a problem.”

“The value proposition for the state of Minnesota has been … if you do business here, you’re going to have a higher cost structure from [the] government. You will pay higher taxes, but in exchange for that, you’re going to get a really highly qualified and productive workforce,” he said.

Garofalo proposed improving government’s efficiency in making decisions as a solution, as well as modernizing tax codes.