MARSHALL - Minnesota Gov. Mark Dayton has sent Revenue Commissioner Myron Frans on a speaking/listening tour of the state to explain the need for tax reform, and seek input from the public.
On Wednesday, Frans came through Marshall and got an earful from area businessmen and farmers, pretty much confirming what he already knew: The tax code is too complicated.
About 18 local residents showed up at the meeting at the Marshall-Lyon County Library, representing city and county officials, farmers, small businesses, and two executives from the Schwan Food Co. Chris Swedzinski attended in a dual capacity, as the District 16A (currently District 21A) state representative, and as a farmer and small business owner.
Frans gave a brief presentation showing how the ratios between the three primary sources of revenue: property, sales, and income taxes, have changed over the years, and changes in consumption patterns and age demographics have changed the tax base.
"In 1999 the three legs of the stool were fairly balanced," Frans said. "Each at about 33 percent. In 2010 property taxes were 39.8 percent of revenue, income taxes 33.6 percent, and sales tax 26.6 percent."
Frans pointed out that in 1950 one-third of consumer spending was for services, and two-thirds on goods. Today that ratio is reversed. Online purchases not subject to state taxation today amount to about $400 million statewide.
The percentage of income paid by the top 10 percent earners has declined, and an aging population results in further declining revenues as wage earners retire.
Frans asked the audience for input on how to make the tax system fair, simple, and support economic growth.
The consensus that emerged was, the system is too complicated, which creates a burden on business.
Paul Torkelson farms north of St. James, represents District 21B in the state Legislature at present, and is running for a seat as representative for District 16B.
"Speaking as a farmer, and I do have part-time employees who work for me seasonally," Torkelson said, "I have some issues handling payroll taxes. I like to do it myself, and it's complicated. Looking ahead I see the property tax situation will be very different. Farm property values are increasing and residential values are decreasing. We're going to see a shift in revenue off residential and towards farms."
Swedinski, speaking as a farmer and owner of a welding business, agreed the tax code is too complicated.
"We've got 55 definitions of property for tax purposes," Swedzinski said, "in South Dakota it's eight. That's added cost to business owners, it makes tax preparation more expensive."
The problem becomes even more complicated when firms do business across state lines and when filing federal taxes.
"Simplicity would be good," said Heidi Dirckx, vice-president for taxation at Schwan. "We don't conform to the Internal Revenue code, we have different depreciation standards. Some definitions are different from the federal and from other states."
For businesses involved in retail sales, figuring out what is and is not subject to sales tax in Minnesota is complicated. Frans cited examples of business start-ups which went for years not realizing they had to collect taxes on certain commodities, until the bill came due and they had to pay years of back taxes.
Steve Ritter is a Lyon County Commissioner and a small business owner.
"The sales tax needs to be looked at," Ritter said. "It should be evened out and flattened."
John Nuytten who farms in Milton Township in Lyon county saw his property taxes go up 20 percent last year.
"It should probably be more based on income than property," Nuytten said.
Though the consensus was that the state tax code is complex and a burden on state businesses, it was also agreed that finding a fair way to simplify the system and maintain revenue was also going to be very complicated.