Critics of a news sales tax pitch that Gov. Tim Walz rolled out in January began lining up their testimony in opposition to his bill this week.
Those critics include: the Minnesota Chamber of Commerce, Minnesota Bankers Association, Minnesota State Bar Association, Minnesota Realtors, Minnesota Society of CPAs, the National Federation of Independent Business and other professional organizations whose services would be impacted by the two-term Democratic governor’s proposal.
On Wednesday, representatives for Walz began their presentation of his tax bill in a hearing before the Minnesota Senate.
Just as quickly as Department of Revenue Commissioner Paul Marquart began walking through the provision where Walz proposes to cut sales taxes by .075%, testifiers from a number of business industry associations voiced their opposition to his proposal.
Their chief concern is Walz’s plan to expand the base of taxable services—which would generate hundreds of millions of dollars in new revenue over the next four years. That would require Minnesotans to pay state sales taxes for the first time on banking and brokerage, legal, and accounting services, which are currently exempted.
Walz labels it a sales tax decrease, others say it has opposite effect
“For the first time in Minnesota history, we are reducing the sales tax,” Walz said during a Jan. 16 press conference on his budget proposal. “And those are things that are going to impact people directly, and thinking about that if there are changes on the federal level around tariffs, those are going to be felt by Minnesota families. We are going to take a proactive move to make that first time we’ve ever enacted a sales tax decrease.”
Republican leaders in the House and Senate have denounced Walz’s sales tax proposal, saying his framing of the provision as a tax decrease is disingenuous.
“Any tax increases are off the table,” said Speaker of the House Lisa Demuth following Walz’s budget proposal unveiling.
The governor’s proposal doesn’t sit right with the Minnesota Bankers Association, whose representatives testified Wednesday in opposition to the expanded sales tax provision.
The MBA, which represents the vast majority of chartered banks around the state, is specifically opposing Walz’s proposal that would require “banks to collect sales tax on certain bank fees,” said Gail Mikolich, an MBA board member. “We believe this will have a negative impact on our customers and our communities.”
Mikolich contended Walz’s proposal is “not a tax on the wealthy” who use many services like banking, accounting and attorneys, “it is a tax on nearly every Minnesotan because banking is an essential service.”
“It’s a big change to go from assessing sales tax on optional services to charging sales tax on a fee that is part of an essential service,” Mikolich added. “Adding costs to bank customers could have the unintended consequence of keeping more lower-income Minnesotans out of the banking system.”
Senate Taxes Committee will resume testimony on bill next week
Shortly after Mikolich concluded her testimony, Sen. Ann Rest, who chairs the Senate Taxes Committee, told her colleagues and those in attendance that the walkthrough of Walz’s tax bill and opportunity for testimony will continue next Tuesday.
Those expected to testify in person when the hearing on the bill resumes include the Minnesota State Bar Association, which represents more than 12,000 licensed attorneys across the state.
Walz’s proposed sales tax expansion on consumer legal services “would be extremely detrimental to the Minnesotans who can least afford it, especially during the most stressful, challenging, and often unexpected moments of their lives,” Samuel Edmunds, president of the MSBA, wrote in a letter of opposition to the provision.
“When Minnesotans hire attorneys to assert and protect their interests in these life-altering cases, it would be extraordinarily unfair—especially when they prevail—to force them to pay what could easily be thousands of dollars in taxes to the same government that initiated the action,” Edmunds wrote.
“The average Minnesotan does not have savings to pay for legal services,” he continued. “When they need to hire an attorney, it requires selling assets, relying on credit cards, or borrowing money from retirement funds or home equity (if either is available). So taxing legal services often means taxing funds that are already subject to significant interest or tax consequences.”
A coalition of business organizations that includes the Minnesota Chamber of Commerce also expressed concerns in a joint letter they submitted to the legislature, saying the governor’s proposal would “impose an additional $466 million burden on consumers over the next four years.”
“While the proposal would lower the state’s general sales tax rate by 0.075% (a savings of $7.50 on $10,000 of taxable purchases), it also would simultaneously apply city, county, and metro area sales taxes to these professional services,” said the joint letter. “This would raise costs for customers by up to 9.8% depending on their locality and hurt our competitiveness.”
Hank Long
Hank Long is a journalism and communications professional whose writing career includes coverage of the Minnesota legislature, city and county governments and the commercial real estate industry. Hank received his undergraduate degree at the University of Minnesota, where he studied journalism, and his law degree at the University of St. Thomas. The Minnesota native lives in the Twin Cities with his wife and four children. His dream is to be around when the Vikings win the Super Bowl.
