B2B taxes cost consumersPublished 11:18am Friday, February 21, 2014
When it comes to taxes on businesses, “enough is enough,” said Jim Pumarlo, director of communications for the Minnesota Chamber of Commerce.
With the new legislative session coming up, the Minnesota Chamber of Commerce is leading the way to repeal three business-to-business taxes that were part of the final 2013 omnibus tax bill.
Two of the new B2B taxes took effect July 1, 2013: Labor charges for repair and maintenance of business equipment, and telecommunications equipment purchases by telecommunications providers. A third tax on storage and warehousing services of business-related goods will take effect April 1.
“It just makes it tougher for Minnesota businesses,” Pumarlo said.
The new sales tax is the state rate of 6.875 percent, plus any local sales tax. These B2B taxes will increase taxes by $314 million in the 2014-15 fiscal year and $449 million in the 2016-17 fiscal year.
These three taxes generate about $300 million in revenue, which represents less than 1 percent of the state’s general fund, according to Pumarlo.
“It’s a very small amount of money in the general fund budget,” he said. “It’s a significant impact on businesses, and it hits the consumers.”
The Minnesota Chamber is leading the United for Jobs Coalition to repeal the taxes. The coalition is made up of chambers and business organizations across the state advocating for the repeal of the B2B taxes. The Fergus Falls, Henning and Perham chambers of commerce are among them.
The new tax will be passed along in the form of higher prices and lower wages with the Department of Revenue estimating 64 percent of the new tax ultimately falling on Minnesota consumers, 26 percent on Minnesota workers, 0.2 percent on Minnesota owners, and 10 percent by non-residents.
“This tax … is going to be hitting the rank-and-file Minnesotans,” Pumarlo said. “In the end, the consumers pay for that.”
The good news, Pumarlo said, is that a budget surplus was forecasted in December. They’re hopeful the budget forecast next week will include a surplus, which will help the cause to repeal these taxes early in the session, according to Pumarlo.
There appears to be momentum with government leaders to repeal the taxes, he said.
“We’re out to kind of show that these taxes do have a big impact across the state,” Pumarlo said.
As an example, Arvig in Perham spent about $1.5 million in 2012 in telecommunications purchases. So with the 6.875 percent tax on $1.5 million, that would be a total of $206,000 in sales tax paid for the year, based on the 2012 numbers, according to David Schornack, director of sales and business development for Arvig. Due to the extra expense from the tax, Arvig would not be able to upgrade about 200 customers each year to higher speed Internet.
It’s the goal of Gov. Mark Dayton to get broadband out to all of Minnesota, Schornack said.
“This is regressive,” he said. “There’s a huge ripple effect. It holds back our whole state.”
It’s going to affect everybody in the telecommunications business, not just Arvig, said Lisa Workman, executive director of the Fergus Falls Chamber of Commerce.
The sales taxes will affect local consumers as well. Workman and the chamber encourage people to telework, but taxing telecommunications equipment purchases doesn’t go hand-in-hand with that.
“This is counter productive of that,” Workman said. “The more devices you have, the more people demand higher speeds.”
Minnesota is in the minority when it comes to these business-to-business taxes, and they make the state less competitive in business, especially in border communities, according to Pumarlo.
“It depends on who you’re competing with,” Schornack said. “The consumer’s going to want the best price.”
Businesses might also turn to layoffs or wage freezes for employees as they’re looking at the extra cost of doing business due to the taxes, according to Workman.