CIP phase-out called good for jobs

As part of a major tax reform in 2001, Minnesota enacted a state property tax levy on certain properties with revenue going to the General Fund.

While owners of seasonal/recreational property pay the tax, the greatest share of the tax revenue comes from the state’s commercial/industrial properties. Business advocates have argued that this tax puts the state at a competitive disadvantage for keeping and attracting job creators.

A phase-out of this tax is a cornerstone of the omnibus tax bill, unveiled March 13 as an amendment to HF2337. After a week of testimony, the bill was expected to be approved by the committee on Friday. Sponsored by Committee Chairman Rep. Greg Davids (R-Preston), bill provisions are aimed at improving the state’s business climate. Opponents say, however, it comes at the expense of people in the lower income brackets, namely through adjustments to the renters property tax refund.

Bill highlights include:

• freezing local government aid at 2012 amounts;

• providing targeted tax relief for homeowners equal to 90 percent of any tax increase over 12 percent for pay 2012 only;

• replacing the foreign operating corporation deduction with a tax credit;

• increasing, in some cases, the research and development tax credit, as well as the angel investment credit; and

• providing a jobs credit for businesses hiring qualified veterans.

These credits and the phase out are expected to negatively impact the General Fund by more than $69 million in fiscal year 2013.

Rep. Paul Marquart (DFL-Dilworth) said it appears these changes would be funded by a reduction to the renter property tax refund. A nonpartisan fiscal analyst’s report shows proposed changes to the renters refund would save the General Fund more than $70 million in the first year of implementation.

Marquart pointed to the consequences on local businesses: “People tend to spend that money. Are you concerned at all about the lowering of the purchasing power?”

This led to a testy exchange between Rep. Tom Rukavina (DFL-Virginia) and Rep. Pat Garofalo (R-Farmington) about businesses’ role in supporting education.

“How the hell are we going to pay for educating our workforce,” Rukavina questioned lobbyists from several state business organizations. “Every time you come here you complain about paying taxes.” He said the burden is steadily being shifted to the middle and lower economic classes.

Garofalo, who chairs the House Education Finance Committee, fired back: “I enjoy this fake populism,” he said, and accused Democrats of continually wanting to raise taxes and “stick it to the middle class.”

The companion, SF1972, sponsored by Sen. Julianne Ortman (R-Chanhassen), awaits action by the Senate Taxes Committee.