Dayton offers list of services to be taxed in Minnesota
ST. PAUL — Amid jockeying by interests looking for a pass, Gov. Mark Dayton said Thursday it will take a “very compelling case” to win exemptions from his plan to subject more items and services to the state sales tax.
Services that would fall under the tax are wide ranging, from wedding planning, dating services and golf lessons to lawyer bills, architectural services and tattoos, according a detailed list released late in the day by the Department of Revenue.
As for goods, the spread-out tax would cover clothing that costs more than $100 per item.
Dayton’s declaration that he would entertain few exceptions came as he faced pressure from small-town newspaper publishers and editors, who warned of severe consequences on their industry if they had to pay or charge taxes on printing, advertising and subscriptions as the administration’s plan contemplates. He said he is open to having his plan “refined,” but will resist significant carve-outs because it would undermine his goal of a tax tradeoff. By expanding the reach of the tax, the Democratic governor proposes to drop the underlying sales tax rate to 5.5 percent — a cut of 20 percent.
“There’s no free lunch here,” Dayton told the Minnesota Newspaper Association assembly.
The expansion is projected to net $2 billion more for the state once the offsetting rate cut is factored in.
The list released Thursday night by the Revenue Department is its most detailed yet, and it also includes items and services that would skate by without a tax. Those items — all of which are tax-free now — include textbooks and computers for school use, prescription medications and eyeglasses, building materials for residences of disabled veterans, mining production materials and residential heating fuel.
More exhaustive lists were promised later when lawmakers get around to drafting the actual legislation.
Officials initially offered only a few examples of things that would be exempt. Among them are fees on child care, medical and funeral services. But there have been close calls as the administration has looked deeper. For example, Revenue Commissioner Myron Frans said his department has concluded that the medical services exemption should be read to include medical devices.
Republicans who have come out vehemently against expanding the sales tax criticized Dayton for setting off a lobbying frenzy by groups anxious for a waiver.
“Whether you get on this exemption list up front or not could very well determine whether it becomes law,” said Rep. Pat Garofalo, R-Farmington. “If you’re not on the front end of this package, you could be in trouble for the rest of session.”
The Minnesota Bar Association has lashed out on the proposed tax on legal bills as a “misery tax” hitting people when they are in tough times. Advertising firms and accountants are warning of losing contracts to companies in other states if they have to charge prospective clients a tax.
Frans denied the administration had deliberately withheld the information to get a better sense of the political pressure spots. The rest of the budget was made public on Tuesday.
“This is a big change and contrary to popular opinion we were really working on this thing up until the last minute,” he said.
What gets exempted has considerable ramifications. While business-to-business transactions will make up the bulk of the projected revenue, there are pockets of consumer purchases of services where a ruling one way or another could cost the state.
Not taxing personal care services now means the state is forgoing $102 million in revenue this fiscal year, according to a 2012 Revenue Department report. The lack of a tax on automotive repair and maintenance is a $135 million hit; the current legal service exemption is projected to cost the state at least $103 million in annual revenue.
All told, the present tax exemption on business services amounts to $3.2 billion and rising. Frans said Minnesota’s tax system is outdated because people now spend more money now on services than taxable goods, a trend reversal from when the state first imposed a sales tax in 1967.
“We’ve neglected to have the tax code reflect the service economy we live in,” Frans said.