Tax Fight Takes Shape at Minn. Capitol

A tax plan making its way through the state Senate rejects Gov. Tim Pawlenty's call to trim the sales tax by a sliver. In his budget plan, Pawlenty recommended shaving one-eighth of 1 percent off the sales tax, or about 2 cents on a $20 purchase.

Instead, the Senate bill puts money into aid programs that its sponsor argues would hold down property taxes levied by local governments.

"Most people are more concerned about their property taxes than the sales tax they pay," Senate Taxes Committee Chairman Tom Bakk, DFL-Cook, said Wednesday after outlining his proposal.

Both proposals might seem a bit out of context: Pawlenty and the Legislature are trying to plug a $935 million projected deficit that is even worse for the following two-year budget cycle. But the extra expenses in each plan are offset by revenue-raisers elsewhere, including the elimination of a corporate tax exemption.

The Senate tax bill pours $115 million more next year and much more down the line into state checks sent to counties, cities and townships.

The hope, Bakk said, is that local leaders wouldn't resort to the property tax as much in 2010 and beyond if the state covered more of their budgets. It's already too late to affect 2009 property tax bills because levies have been set and invoices for installments due in May have gone out.

Bakk acknowledged that there's no guarantee the state help would produce actual reductions in homeowner tax bills; he said it's more likely that future property taxes would climb at a slower rate. For the 2008 tax year, the statewide average property tax increase was 7.75 percent for all property types, and 4.26 percent for homesteads, according to Department of Revenue figures.

But there's wide disagreement about the power of local government aid as a tax relief tool. Revenue Commissioner Ward Einess is among those who are skeptical.

"Every community is uniquely situated. There are some communities that probably are going to buy down the levy dollar for dollar, but there are other communities that aren't going to buy down the levy at all," Einess said. "It really is a checkerboard throughout the state."

The Pawlenty administration has suggested capping the amount levies could rise a proposal that has gone nowhere in recent years.

Einess and others at the Capitol would prefer putting money into programs taxpayers can access directly. The state's current programs provide refunds to homeowners of up to $1,750 with the actual amount depending on household income. A special refund program can net filers as much as $1,000 more in cases where their property taxes go up by more than 12 percent in one year.

"When the state government is going to do relief, we like it as targeted as possible based on the ability to pay," said Bob DeBoer, an analyst for the Citizens League, a St. Paul-based public policy think tank. "That's how you can directly make sure people aren't being forced out of their homes."

Even if property taxes for homeowners fell under the Senate bill, owners of other property would pay more. Taxes on business and utility land would go up by $29 million in 2010 and $53 million in 2011.

And the bill does away with Pawlenty's Job Opportunity Building Zone program that gives tax breaks to businesses that expand or relocate in distressed areas. Companies enrolled in JOBZ by May 1 would remain eligible for the breaks but no new companies would be allowed in after that.

Bakk's committee plans to act on the bill Thursday. A vote by the full Senate is expected next week.

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Brian Bakst can be reached at bbakst(at)ap.org