Dayton: tax plan debate will yield ‘good conclusion’

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Jim Mone/AP

Includes latest reporting from MPR’s Mark Zdechlik with help from Tim Pugmire

Signaling a major shift in his budget and tax proposals, Gov. Mark Dayton said Friday there won’t be a sales tax on business or consumer services in the the revised budget plan he’ll release next week.

“I’m not just getting an ear-full of opposition, I’m getting a TCF Stadium-full of opposition,” Dayton told a west metro chamber of commerce breakfast.

“I’m coming out next week with my revised budget based on the better revenue forecast and the (business-to-business taxes) will not be in it, so you can all rest assured there,” he said.

Dayton had planned to raise more than $2 billion by taxing services, including numerous business services such as legal, advertising and accounting work. Expanding the sales tax base was part of a sweeping plan to lower the tax rate by 20 percent and provide property tax refunds to every household in the state.

Dayton said losing that much revenue from the plan would force him to re-evaluate other parts of his proposal, including $500 property tax rebates for homeowners and reducing the sales tax rate to 5.5 percent.

“The property tax rebates and the lowering the sales tax rate are definitely going to be affected,” he said. “I can’t say to what extent at this point, but, yes b-to-b was very important from a revenue standpoint and being able to do some other the other tax reductions that we wanted to do.”

The plan to tax business services was controversial from the start, with opponents arguing it would kill jobs and damage the state’s economy.

The ground shifted last week when a revised forecast showed Minnesota’s projected budget deficit had shrunk from an earlier $1.1 billion to $627 million for 2014-15, making it harder to justify the business services taxes.

Dayton also said it is unlikely he will continue to push for taxing sales of items of clothing that cost more than $100.

But he said he still supports raising income taxes on the state’s top earners and raising the cigarette tax by 94 cents per pack.

Reaction from the Capitol was swift.

Senate Minority leader David Hann, R- Eden Prairie, said he was encouraged by the move. Hann said he now hopes the governor takes a different approach to the budget.

“We hope that means that’s he’s going to perhaps scale back his expectations for spending and perhaps even take the approach we did two years ago of trying to manage the budget within the parameters of available revenue,” Hann said. “We think that would be a good idea. Maybe he’ll go that far. We don’t know yet.”

DFL House Speaker Paul Thissen of Minneapolis said his caucus had also heard many complaints about the business tax proposal. He said it was never going to be included in the House DFL budget plan.

Rep. Pat Garofalo, R-Farmington, said it’s not a surprise the governor dropped the plan because he doesn’t think Dayton was ever serious about it in the first place.

“This was just a way to draw fire and have a shiny object that would distract the public from the other tax increases and spending proposals in his plan. But I don’t think that anyone seriously though that the business to business tax had any chance of ever becoming law,” he said.

Dayton said he’s planning a long meeting Saturday with his finance team to finalize his new budget rework.

“I thought we had a good package overall because it would have lowered taxes state and local overall for most Minnesotans — middle income families and individuals,” Dayton said. “We did our very best to get that message out but you know people would pick on the one thing they didn’t like about the tax side of it and leave out the investments in education and leave out the reduction in taxes elsewhere.”

Dayton would not give other specifics Friday on what his revised plan will hold. But he said he expects the budget and tax debate and revisions to “come to a good conclusion at the end.”