Putting a tax on interest

Businesses receiving interest higher than 15 percent of the principal balance from consumers on loans could see a new tax.

Sponsored by Rep. Tom Rukavina (DFL-Virginia), HF716 would enact a 30 percent tax on interest earned in excess of 15 percent. The bill was laid over for possible omnibus bill inclusion by the House Taxes Committee March 9.

According to the Department of Revenue, the 30 percent tax would be imposed on interest earned by a business that engages in loaning money, credit or goods. The bulk of the tax would be collected on the outstanding balances of credit extended to consumers by credit card companies. The bill also applies to short-term loans made by pawn shops and other similar short-term loan operations. The tax is in addition to the corporate franchise and individual income tax.

“I think this is a terrible bill,” said Rep. Paul Kohls (R-Victoria). He added that the bill said nothing about its effect on mortgages and said it would further dry up credit markets.

Some members voiced concerns about the percents chosen.

“Why would you choose 15 percent and 30 percent?” asked Rep. Laura Brod (R-New Prague). “I’m concerned we’re going to dry up the credit market more than it already is.”

Rukavina said he was carrying the bill for Sen. Julianne Ortman (R-Chanhassen), who sponsors SF507, the bill’s companion. “She picked the numbers. And I am concerned about people hurting in this economy.” That bill awaits action by the Senate Taxes Committee.

Chairwoman Rep. Ann Lenczewski (DFL-Bloomington) said the bill could be designed any way the committee would want it to address concerns.