Business-to-business taxes: State’s businesses hoping to get some taxes repealed this year
WILLMAR — Minnesota’s business community is working hard to persuade state lawmakers to repeal three business-to-business taxes early in the 2014 legislative session.
When the session begins Feb. 25, they hope that taxes on business equipment repair, on telecommunications equipment and on warehousing services can be repealed.
Two of the taxes went into effect July 1, 2013, and the warehouse tax is set to go into effect April 1.
The taxes are creating problems for business owners and could be harming the state by driving businesses and their owners to other locations, Hanson Communications owner Bruce Hanson said this week.
Hanson is a Clara City native, and his business is based on the MinnWest Technology Campus in Willmar. He does business in several states, he said, and some other states have more favorable tax climates for expanding his business.
The taxes are “poor tax policy,” said Jim Pumarlo, director of communications for the Minnesota Chamber of Commerce. Pumarlo was in Willmar to discuss the taxes with Hanson.
Gov. Mark Dayton has said he wants to repeal the taxes, but legislative leaders have been noncommittal, Pumarlo said.
Business owners hope that a favorable state budget forecast this month will help them persuade legislators to do away with the taxes, he said. The forecast released last fall projected a surplus of more than $1 billion.
Pumarlo said he believes there’s a good argument for repealing the taxes, regardless of the budget forecast.
The taxes could harm some of the governor’s own initiatives, he said. Dayton has a task force studying improving broadband access in the state, but the telecommunications tax will add to the cost of that.
Hanson said his business provides telecommunications services and has expanded in some areas by purchasing small family-owned telecom companies when the owners decide to get out of the business.
The business purchases equipment to provide services to customers, and customers are taxed for the service, he said. If the cost of the new tax on the equipment has to be passed on to consumers, too, it’s a “tax on a tax,” he said. If the costs are passed on to consumers, it puts his business at a competitive disadvantage, he added.
Another problem is that the tax on equipment cuts the portion of the company’s capital expenditures budget that can be spent on the actual equipment, Hanson said.
Last year, the company accelerated its equipment purchases, making all its planned equipment purchases before July 1 to avoid the tax. That can’t be done this year.
The new taxes, and a new top tier in personal income taxes, have seen businesses and their owners leave the state, he said.
“Often times, we don’t think of tax policy as unavoidable,” Hanson said. “This was enough money to avoid a tax by doing something.”
Pumarlo said the warehouse tax has already affected businesses, even though it hasn’t gone into effect yet.
“Business plans are being made,” he said. One Twin Cities company with multiple locations decided to build a warehouse expansion in Iowa rather than Minnesota.
Hanson said his business isn’t directly affected by the warehouse tax, but he knows of one company that moved its warehouse from Moorhead across the border to Fargo, N.D.
“Every time you put a new tax on somebody, it makes it easier to move,” Pumarlo said.