State Chamber favors repealing B2B taxes [UPDATED]Published 4:37am Monday, August 19, 2013 Updated 6:40am Monday, August 19, 2013
The Minnesota Legislature should use the special session to repeal all three sales taxes on business-to-business (B2B) services enacted earlier this year:
• Labor service charges for repair and maintenance of business equipment effective July 1, 2013. $152 million in Fiscal Year 14/15
• Purchases of telecommunications equipment by telecommunications providers effective July 1, 2013. $66 million in FY 14/15
• Storage and warehousing services of business related goods effective April 1, 2014. $95 million in FY 14/15
Specific arguments on why these taxes should be repealed:
• Makes Minnesota an outlier regionally and nationally. There are important economic reasons why almost all states have chosen not to impose a retail sales tax on business inputs.
This type of tax creates economic distortions, great inefficiencies, administrative complexity and tax pyramiding.
• Harms small and midsized businesses since they are less likely to perform these services in-house. The B2B tax is applied only if a company hires the work out.
• Harms consumers and workers as the cost of the tax may be passed on through higher prices for goods, lower wages and fewer job opportunities.
• Undermines job creation and conflicts with other important public policy goals. For example:
• A new $24 million Job Creation Fund was created in 2013 session to encourage industries — including storage and warehouse services — to locate in Minnesota.
This new tax not only puts our current warehouse and storage businesses at an extreme competitive disadvantage, it will also make it very difficult to attract new facilities and related jobs to Minnesota.
• The capital equipment was changed to an up-front exemption of which the Chamber has been a longtime supporter to encourage investment in capital equipment.
While the Legislature made this important and welcome change, it added a 6.875 percent sales tax (plus any local sales tax) on to the labor for repairing and maintaining that equipment.
• Telecommunications equipment is also subject to the new tax, making it more expensive for providers to expand Minnesota’s telecommunication infrastructure. The tax is inconsistent with the recommendations by Governor Dayton’s Broadband Task Force and the $500,000 spent to create a broadband development office to encourage more investment of high-tech equipment and capacity in Minnesota.