PoliGraph: Income tax plan would hit few small businesses

DFL leaders in the Minnesota House unveiled their tax plan this week, and were eager to point out that a proposed income tax hike wouldn't have a big effect on small businesses.

"It's important to note it would only affect the income that business owners take in salary over $400,000 not in other business expenses," said House Majority Leader Paul Thissen during a press conference April 15, 2013. "The talking point that Democrats are going to tax mom and pop small businesses is simply not true."

Very few small businesses would be affected by the proposed tax rate change, though the tax bill Thissen is talking about includes other new taxes, fees and fee increases that would affect both small and large businesses.

The Evidence

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Thissen is talking about the DFL's proposal to implement a new top tax rate of 8.49 percent and an additional but temporary 4 percent surcharge on Minnesota's wealthiest taxpayers. The surcharge would raise $1.2 billion to pay schools money the state borrowed to balance last biennium's budget.

The plan would affect only 3.3 percent of Minnesota's filers - or about 12,000 returns - who pay taxes on "pass-through income," or income that comes from S corporation, partnerships and sole proprietorships, according to the Minnesota House's research department. These filers generally have few employees, though some large companies pay taxes this way as well.

In a recent Star Tribune editorial, Thissen also pointed out that the surcharge would only apply after small business owners had paid employees and made business investments.

So, when it comes to the new income tax rates, Thissen is basically correct: the higher rate would affect very few businesses that pay income taxes.

The DFL tax bill also includes other new taxes, fees and fee increases that would affect many business sectors.

For instance, the legislation would impose a $5 fee on auto and homeowners insurance policies that insurance industry lobbyist Mark Kulda says would pose a financial burden on smaller insurance companies. That provision would raise $23 million for fire fighter and police pensions.

The legislation also includes new taxes on liquor sales, which bars and liquor stores worry they won't be able to afford.

Also on the table are fees on prepaid cell phones, a sports memorabilia tax and higher fees for attorneys to fund the court system.

The Verdict

Thissen isn't too far off in saying that the income tax hike wouldn't apply to "mom and pop small businesses," though it's important to note that the House tax bill includes other fees and taxes that could affect businesses.

SOURCES

MPR, VIDEO: House DFL targets top earners, alcohol and tobacco in tax bill, by Tom Scheck, April 15, 2013

Minnesota House Research, Bill Summary: HF 677, April 18, 2013

Pioneer Press, Minnesota brewers, liquor lobbyists say proposed alcohol tax hike will hit consumers, by Kyle Potter, april 16, 2013

MPR, Fee increases proposed at Capitol could rake in hundreds of millions, by Tom Scheck, April 19, 2013

MPR, House Dems eye alcohol tax bump, by Tom Scheck, April 15, 2013

The Star Tibune, Minnesota DFLers offer a responsible budget, by Rep. Paul Thissen, April 2, 2013

Minnesota Department of Revenue, Businesses Subject to Minnesota Income Tax, accessed April 19, 2013

Mike Howard, spokesman, DFL Caucus, April 18, 2013

Mark Kulda, Vice President of Public Affiars, Insurance Federation of Minnesota, April 18, 2013