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Governor Dayton announced the sales tax on business-to-business service transactions would not be included in his budget going forward.
(Published Mar 8, 2013)
At a Friday morning meeting of the TwinWest Chamber of Commerce, Governor Mark Dayton announced that he was dropping sections of his tax proposal from his budget, specifically mentioning the sales tax on business-to-business service transactions. There are rumors that other aspects of the governor’s tax plan may also be dropped and with the reduction in available revenues, there will undoubtedly be significant changes to the governor’s spending initiatives as well.
The Governor had committed to revising his budget proposal after last week’s budget forecast indicated that the state deficit for the upcoming FY2014-15 biennium had been reduced from $1.1 billion to $627 million. His Friday morning announcement to drop the proposal to apply the sales tax to business-to-business services took many by surprise. We expect that full details of the revised governor’s budget proposal will be released next Tuesday.
Under the tax initial bill, business-to-business service transactions such as contract legal, accounting, engineering and architectural services would have been subject to the state sales tax. With the infusion of new sales tax revenue, the governor also proposed a rate reduction from 6.875 percent to 5.5 percent. In total, the governor’s sales tax recommendations, which included the business-to-business sales tax expansion, would have generated an estimated $2.1 billion increase in net general fund revenues for the state over the FY 2014-15 biennium.
Given that city purchases are subject to the sales tax and that many cities contract for a variety of professional services, the business-to-business expansion proposal would have impacted cities. A number of cities provided the League with estimates of their net sales tax liability change under the rate reduction to 5.5 percent as well as the extension of the sales tax to services. For many cities that provided the League with information, the net impact would have increased sales tax liability—in some cases, substantially.
The League’s 2013 legislative policies support restoring the sales tax exemption for cities. Several bills have been introduced this year to restore the exemption for cities and counties and these bills would have also exempted cities from the expanded sales tax under the governor’s budget. Under current law, the exemption would have reduced city and county costs in the first full year of implementation by an estimated $130 million.
We will have more information on the entire supplemental budget recommendations when they are released next Tuesday.
Questions? Contract Gary N. Carlson at (651) 281-1255 or firstname.lastname@example.org
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