Hello from the State Capitol,
This week, House Democrats approved their omnibus taxes bill. With a $17 billion budget surplus, many of us at the start of the year envisioned this bill to contain numerous tax relief measures that would provide significant and permanent savings to all Minnesotans. Instead, Democrats are trying once again to raise taxes and effectively eliminate the popular electronic pull tabs as we currently know them.
Regarding the increases in the taxes bill, Democrats would raise taxes by $2.2 billion by creating a 5th income tax tier and forcing corporations to claim all worldwide income on their Minnesota returns, a provision that will be extremely problematic.
Utilizing mandatory worldwide combined reporting to calculate all corporate income taxes was tried by nearly a dozen states in the 1980’s. Pressure against it came from both foreign governments and foreign and domestic multinational businesses and almost lead to international tax war. Since then, every one of the states that had imposed it reverted back to the “water’s-edge” corporate taxation – which means operating within the “water’s edge of the United States - and have remained the same ever since.
The adoption of this bill would place Minnesota at a HUGE competitive disadvantage among states and would send a warning flag to multinational businesses that the state is a hostile environment for business expansion and relocation. It also would supersede the water’s edge metric, basically ensuring there will not only be litigation but repercussions.
The bill would also change the way electronic pull tabs are utilized by American Legions, VFW’s, bars, and other establishments that offer them. Specific language would eliminate the “open all” feature that has been in use in electronic pull-tab games for years and is expected to drastically alter the amount of sales – and ultimately charitable revenue – that is collected. Almost $2 billion in revenue was generated in 2022 alone from electronic pull tabs, and a significant decline in sales will impact the revenue that is sent to local nonprofits, youth sports associations, and other charities who benefit from charitable gambling.
It's worth remembering that electronic pull tabs were put into place to help pay for the Vikings stadium, as a percentage of that collected revenue is taxed and sent back to the state. The Democrats did slightly reduce this taxation amount in this bill, but not nearly enough to offset the expected loss in ticket sales. Since the stadium is paid for, it would make sense to either eliminate or significantly reduce this tax, so more of the electronic pull tab revenue could be kept locally and distributed to needed organizations to make up for the elimination of the “open all” feature.
Other issues include not allowing any local option sales tax provisions in the bill and looking for a new way to address city’s needs. The problem is, Democrats gave the transportation and housing committees the ability to locally tax Metro Area residents by a full 1%, while local government require a voter referendum for their projects. It’s a major contradiction.
The bill also puts Local Government Aid and County Program Aid on auto-inflation, ranging from 2.5 – 5%. If it ever drops below that amount, the State will be forced to make up the difference. It is never a good idea to put anything on auto-pilot at the State Capitol because eventually the economy will turn and a significant bill will come due, yet House Democrats don’t seem to care.
Overall, this is a bill with too many permanent problems, and not nearly enough solutions for Minnesotans who are struggling financially and are in desperate need of tax relief to help pay their bills.
Have a good weekend,
John