Commission advice becomes a bill

Expanding the state’s sales tax to necessities could become reality after a report from the

Governor’s 21st Century Tax Reform Commission.

A result of the commission’s report is HF2263, sponsored by Rep. Ann Lenczewski (DFL-Bloomington). The 15-member commission, appointed last year by Gov. Tim Pawlenty, reported its recommendations to the House Taxes Committee April 1. No action was taken.

Based on those recommendations, the bill would raise cigarette taxes by as much as $1 a pack and expand the state’s 6.5 percent sales tax to items like clothing, baby products, textbooks, caskets and burial vaults.

The additional sales tax would help offset almost $1 billion in business tax cuts. Aimed at making Minnesota more competitive, the corporate income tax would be repealed and businesses would be offered other tax credits and exemptions.

Commission member John Spry, a University of St. Thomas business professor, said business taxes are inefficient and ultimately paid by consumers. He said consumers would be helped more by a healthy business climate.

“I’m smart enough to know that when you put 13 business people on a committee to figure out what to do with taxes, it’s going to come out with, ‘Cut business taxes,’” said Rep. Tom Rukavina (DFL-Virginia). “You’re hammering unfairly with sales tax increases and cigarette tax increases on the very people who are paying a very disproportionate share of their income.”

According to the Department of Revenue, the bill would guarantee revenue neutrality by adjusting that state’s sale tax rates. Both the 6.5 percent general sales and the constitutionally dedicated three-eighths of 1 percent sales tax rate added last November would have to be adjusted to maintain revenue neutrality, based on projected revenue changes in fiscal year 2011. Based on preliminary estimates, the rates would fall to 6.387 percent and 0.311 percent, respectively, to put the combined sales tax rate at 6.698 percent. The constitutional amendment allows its dedicated sales tax to be adjusted in a revenue-neutral way for changes in the tax base.

There is no Senate companion.