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Gov. Dayton ready to drop Minnesota sales tax overhaul

ST. PAUL, Minn. — Minnesota Gov. Mark Dayton said Friday he was almost certain to drop his bid to broaden the state sales tax to service transactions, a key revenue element of his proposed budget but also one that provoked protest from the business community.

In a telephone interview with The Associated Press, Dayton described himself as “99.8 percent certain” to take that step next week. He said he wants one more chance to pour over the numbers in a meeting with top advisers set for Saturday. He plans to detail other revisions to his budget proposal on Tuesday.

Dayton told a suburban chamber of commerce earlier Friday that a business-to-business component was surely gone. He said later to AP that he doesn't want consumers to shoulder the new tax load and that leaving businesses out would make the system unfair. In his budget plan, Dayton had used the broader tax to drop the underlying tax rate from 6.875 percent to 5.5 percent.

Dayton is rewriting his budget after a state economic forecast trimmed the state's projected deficit by more than 40 percent to $627 million for the next two years. But the move to jettison the sales tax is as much a response to its unpopularity, he acknowledged.

“I heard an outpouring of opposition from business people all over the state. They're very important to our state and to me,” Dayton said. “I listened.”

The Democratic governor was banking on the sales tax expansion to also pay for other program spending and tax breaks. Dayton was aiming to raise more than $2 billion over the next two years by taxing legal, accounting and other services. A proposed sales tax on clothing priced above $100 was also likely to go.

With fewer dollars, Dayton conceded that he'll have to scale back other ambitions. Chief among them could be his proposed $500 per homeowner property tax rebate, which would have cost the state $1.4 billion in its next budget.

"Removing the sales tax expansion removes significant amount of revenue that could be used for lowering the sales tax rate and the property tax rebate, he said.

Dayton said he is standing behind his plan to raise income taxes on the wealthy by adding a new fourth bracket to the tax code.