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Erik Burgess, Published February 28 2013

Moorhead businesses push back against Dayton tax plan

MOORHEAD – Business leaders here say they are worried that Gov. Mark Dayton wants to balance the budget on their backs.

Dayton’s state budget and sweeping tax reform plan, unveiled in January, lowers the sales tax rate from 6.875 percent to 5.5 percent in a year but makes up for it by expanding the tax to more services, including those that businesses provide to other businesses, which are not taxed now.

The plan would bring in $2 billion in new revenue over two years, but business leaders in Moorhead say they would lose any competitive edge they may have over North Dakota.

The Moorhead Economic Development Authority decided this week to draft a letter to area legislators to let them know the business service tax, as well as Dayton’s tax on clothing items over $100, would hurt the city.

“It’s just going to hurt people in the long run. The public is going to end up paying for it,” said Les Stenerson, president of Stenerson Lumber Co. “They need to be ultra-sensitive to border issues.”

It’s still unclear exactly which services would be taxed and whether the tax would also apply to exchange of goods between businesses, said Chuck Chadwick, executive director of the Moorhead Business Association.

“We need to focus on the concept. The concept is terrible, and it doesn’t matter what the details are,” said Chadwick, adding that the business group has not taken a formal stance on the issue.

The business-to-business tax would act as a hidden fee because the consumer is not directly taxed, said Ben Clapp, an assistant professor of finance at Minnesota State University Moorhead.

“Politically, lowering sales tax sounds very good, but it’s because the hidden tax is on the businesses, who will pass that on then to the consumer, and they won’t be aware,” he said. “It makes a lot of sense if I were trying to be re-elected.”

Clapp said the tax will likely hit smaller businesses much harder, as larger ones might bring services like accounting and legal in-house to avoid the tax.

Reducing the overall sales tax rate can only happen with the business service tax revenue, Clapp said.

“Otherwise, there’s not enough revenue,” he said.

Pat Kovash, who has owned Kovash Marine in Moorhead for nine years, said he is considering a large expansion, but now he is also looking at Fargo.

“I just can’t imagine that our Legislature would actually pass legislation that basically is going to make it more equitable to shop outside of the state,” he said.

Minnesota businesses already pay a state-levied commercial property tax, on top of the local property taxes, Chadwick said. The state brings in

$800 million a year from businesses on that tax.

Sen. Kent Eken, DFL-Twin Valley, said the business services tax concerns him, but he wants to leave room for negotiation on the budget as a whole, which he believes has plenty of good in it for greater Minnesota.

Dayton’s plan would also limit commercial property tax rate increases, saving businesses an estimated $120 million through 2017, said Eken, whose Senate district includes Moorhead.

He also said the plan includes more money for cities, counties and schools, which should keep local property taxes down.

“There’s good things in the package, too, for businesses that we don’t want to lose,” said Eken, who said he doesn’t like the business-to-business tax but doesn’t want to lose property tax relief, either.

The Senate tax committee will be combing through the budget over the next few weeks, Eken said. The session ends in late May.

Readers can reach Forum reporter Erik Burgess at (701) 241-5518