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Property tax proposal garners mixed response; bill's author confident he can get governor on board

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ST. PAUL -- Cities can accept a large property tax reform bill, counties don't know what to think about it and non-profit organizations love it.

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And its chief author is optimistic that he can convince Gov. Tim Pawlenty to accept at least part of the measure.

The bill written by Rep. Paul Marquart and others features a provision allowing Minnesota counties to institute a half-percent sales tax instead of raising property taxes. Marquart, DFL-Dilworth, said that would ease property taxes on the poorest Minnesotans because the sales tax is easier for the poor to handle since there is no tax on food and clothing.

The bill, which would be the biggest change in property tax law in years, received mixed reaction Tuesday during its first public hearing.

Buzz Anderson of the Minnesota Retailers Association said businesses do not like the county sales tax option because it would be more confusing to the public. It also would create a checkerboard of counties that do or do not assess the new tax, he said.

Alyssa Schlander of the Minnesota Auto Dealers Association said car sellers, already hurting due to a slumping economy, opposes the county tax because it creates a disadvantage for those in counties with higher sales taxes. Even if the difference from county to county is $125 on the cost of a car, she said, it would drive many buyers to the area with lower taxes.

Dealers along the state's borders also would face a serious problem, Schlander said, because the proposed tax could drive buyers to other states. South Dakota, for instance, assesses a 3 percent tax on car purchases, compared to a possible 7 percent in Minnesota if the bill passes.

The Minnesota Chamber of Commerce also opposes the county tax plan.

Kim Pearson, CEO of Minneapolis-based New Boundary Technologies, said the sales tax is outdated.

"Local sales taxes made sense back in the brick and mortar type of economy," he said, but are not fair in an economy that features more and more Internet sales.

However, county leaders have yet to develop a position on Marquart's plan.

"Some people see potential, some see pitfalls," Joe Matthews of the Association of Minnesota Counties testified. "It's a lot for us to think about."

However, some county representatives said the plan would be more politically palatable if the state required all counties to assess the half-cent tax, but gave each county the chance to opt out.

City leaders praised the proposal because it cuts state aid paid to local governments less than would Pawlenty.

Non-profit organizations also praised it because it maintains property tax-exempt status for many charities.

The top Republican on Marquart's property and local sales tax committee said most of the bill is fine, but Rep. Morrie Lanning, R-Moorhead, has problems with allowing counties to tax sales.

"I support much of what is in the bill," Lanning said.

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