Business to business taxes in 2013
session
The
Minnesota Chamber was successful in defeating over $3.6 billion in new business
to business taxes proposed in Governor Dayton’s original budget that would have
extended the sales tax to virtually all business transactions including
advertising, accounting, legal, repair, architectural, engineering, graphic
design, management consulting, marketing, scientific research and development,
security, computer services, plus many other management and consulting
services. Unfortunately, three new business to business
transactions were included in the final 2013 omnibus tax bill. These new B2B taxes were insisted upon in the
final deal by Senate DFL Majority Leader Bakk and agreed to by Governor Dayton
and House DFL Speaker Thissen. These new
taxes will result in tax increases of $314 million in FY 14/15 and $449 million
in FY 16/17.
The
three new business to business transactions now taxable in Minnesota are as
follows:
·
Labor
service charges for repair and maintenance of business equipment effective July
1, 2013. This will raise $152 million in
FY 14/15.
·
Purchases
of telecommunications equipment by telecommunications providers effective July
1, 2013. This will raise $66 million in
FY 14/15.
·
Storage
and warehousing services of business related goods effective April 1,
2014. This will raise $95 million in FY
14/15.
The new B2B taxes do
not apply if it is a service done by an employee or by an affiliated company.
The new sales tax is the state
rate of 6.875% plus any local sales tax.
The
Minnesota Chamber opposed these new B2B taxes and strongly advocated against
their inclusion in the 2013 session. We
will advocate for repeal of these taxes in the 2014 session as the new B2B
taxes will:
·
Result
in extreme competitive disadvantage for businesses impacted by this new fixed
cost of doing business in Minnesota that is not imposed in most other states.
·
Make
Minnesota an outlier both regionally and nationally. There are important economic reasons why
almost all states have chosen not to impose a retail sales tax on business
inputs due to the economic distortions and inefficiencies that are created by
the pyramiding of the sales tax on business services and purchases and the
detrimental impact on a state’s economy and business climate.
·
Harm
small and mid-sized businesses especially hard as our small businesses are less
likely to be able to do these new services in-house and thereby avoid the sales
tax.
·
Ultimately
harm consumers and workers as the final incidence of this regressive tax is
passed along through higher prices for goods and lower wages and fewer job
opportunities.
·
Undermine
job creation and undermine other important public policy goals. For example,
o A new $24 million Job Creation Fund was
created in 2013 session in order to encourage industries including storage and
warehouse to locate in Minnesota. This new tax not only puts our current
warehouse and storage businesses at an extreme competitive disadvantage that
will likely result in job losses – it will also make it extremely difficult to
recruit any new facilities to Minnesota.
o The tax bill results in very
inconsistent policies such as changing the current upfront exemption for
capital equipment to a refund in order to encourage more capital equipment
purchases at the same time imposing an additional cost of 6.875% sales tax
(plus any local sales tax) on the labor to repair and maintain that equipment.
o
Another
competing and inconsistent policy is the telecommunications equipment tax that
will make it more expensive to build Minnesota’s telecommunication
infrastructure. This tax goes in the
opposite direction of recommendations by Governor Dayton’s Broadband Task Force and the $500,000 for
creation of broadband development office to encourage more investment of high
tech equipment and capacity in Minnesota.
What
is taxable under the new B2B taxes?
Labor service charges
for repair and maintenance
of business equipment including farm machinery, medical equipment, electronic
equipment, capital equipment, computer and industrial equipment. This includes but is not limited to photocopying
machines, printers, televisions, and scientific instruments. This does not include motor vehicles, furniture and fixtures, ships, railroad
stock and aircraft. This does not
include services provided by own employee or affiliated company. This is effective for purchases after June
30, 2013.
Storage and warehouse business
services. This includes all business related
storage and warehousing activity including agricultural input storage, petroleum
storage, storage/warehouse at Port of Duluth, and distribution centers. This does not include agricultural products, refrigerated storage, electronic
data, mini-storage for consumers. This
does not include storage and warehousing if own your own facility and services
are done by your employees. This is
effective for purchases after March 31, 2013.
Telecommunications
equipment applies to purchases by the telecommunications service providers on the machinery, equipment, fixtures
used in receiving, initiating, amplifying, processing, transmitting,
retransmitting, recording, switching, or monitoring telecommunications services
used by telecommunications, cable television, direct satellite service provider
in providing telecommunications service.
It includes repair and replacement parts. This is effective for purchases after June
30, 2013.
The Minnesota
Department of Revenue is providing further guidelines on implementation that
will be released over new few weeks and months.
Please
contact Beth Kadoun at bkadoun@mnchamber.com or call 651-292-4678 if you have any
questions. If you would to be involved
in a coalition to repeal these new B2B taxes please contact Jennifer Byers at jbyers@mnchamber.com.
No comments:
Post a Comment