MN Senate tax bill puts businesses in a bind

03/28/2007

St. Paul, MN (AP) -- DFL senators made a give-and-take offer to the state's businesses Wednesday: Lawmakers would grant them two prized tax advantages if they cough up more in property taxes and forego some other preferences.

The state treasury would come out on the better end of the deal. While revising the business tax code would require businesses to pay $465 million more over the next two years, the assorted breaks would cost the state about $140 million. The business lobby was cool to the offer.

The tradeoff is an element of a tax bill speeding toward a Friday vote in the Senate. A separate bill in the works will include a proposal to raise income taxes with the proceeds directly linked to education, said Senate Taxes Chairman Tom Bakk, DFL-Cook.

Both are part of a Democratic strategy to raise more money for schools, homeowner tax cuts and other spending items lawmakers are having trouble covering with existing revenue.

The bill also authorizes local subsidies for a Mall of America expansion and new buildings at publishing giant's Thomson West campus in Eagan. No state money would be used for the mall's project, but Bloomington could offer local tax incentives and raise sales taxes at the mall. A sales tax break on construction materials for Thomson wouldn't be fully granted until the company adds a promised 2,000 jobs.

Another provision would eliminate Republican Gov. Tim Pawlenty's 3.5-year-old JOBZ program, which gives income, sales or property tax exemptions to companies for as long as 12 years to relocate or expand in areas with depressed job markets. Bakk helped get the program in law, but now has reservations about its usefulness.

"It just isn't doing what we thought it was doing," Bakk said. He said many of the expansions have occurred in growing corridors and struggling areas haven't seen much of a benefit.

If the bill were to become law, many Main Street businesses would pay 3.4 percent more in property taxes, Bakk said. Bigger enterprises could see their bills rise as much as 4.6 percent. The added business property taxes total $221 million in 2008-09.

Businesses that pay less because they have foreign operations would lose that preference, costing them $244 million.

It would help pay for a property tax relief package that aims for average reductions in homeowner bills of 3.8 percent next year. Other homeowner tax cuts are included in an education bill the Senate passed on Monday.

On the plus side for businesses, they would receive automatic sales tax exemptions for major capital equipment purchases instead of having to apply for it. Another corporate tax change the Chamber of Commerce has pushed for would also be granted.

"The price tag for the relief that we receive in the bill is too high," said Tom Hesse, a lobbyist for the Minnesota Chamber of Commerce."

Pawlenty has threatened to veto any bill that raises state taxes. He reiterated this week that his budget, a 9.3 percent increase over current spending, should be sufficient.

"This idea that we're going to raise taxes to push spending up to some unsustainable, irresponsible level, just isn't going happen," Pawlenty said.

While Republicans are in the minority of both chambers, they hold enough seats to sustain a Pawlenty veto.

With various indicators suggesting economic trouble on the horizon, Republican Sen. Geoff Michel of Edina said it's the wrong time "to kick employers in the shins, to kick taxpayers with more burdens."