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Dayton proposes shift to sales tax, II

If you read our blog last week, we had a post that shared Minnesota Gov. Mark Dayton's proposal to rely more on sales tax than on income tax. The plan in Minnesota involves a combination of income tax and a broadened sales tax base. This has created some controversy.

According to those for sales tax plan, it is an untapped resource for the state; specifically within the service industry. In fact, overall household spending on services has significantly increased over the past few decades. Nationwide, the percentage of household money spent on services increased by 17 percent over the 40-year span from 1970 to 2010. Dayton's proposed plan is similar to the one proposed in Ohio in which the sales tax percentage would be lowered overall, but the tax would be broadened to include more goods and services.

Dayton's revenue commissioner said that the plan is to not only increase the sales tax base, but to also increase the income tax by 17 percent for the top earners in the state. The sales tax revenue would be used to help alleviate the property tax burden. He said that increasing the income tax on top earners and increasing the sales tax base would even out the three sources of revenue for the state -- those being income, sales and property tax.

Other individuals agree with a portion of the plan: the part about increasing the sales tax. A heavier reliance on sales tax is often something that they say helps boost the economy. This group also believes that a sales tax is also easier for the public to handle both psychologically and monetarily. The tax is paid in small increments over the year making it less noticeable for the taxpayers. With the elimination of income tax, the large bill due at the end of the year wouldn't be the surprise burden. For some, the tax bill at the end of the year is one that becomes difficult to pay and could lead to the inability to pay the tax bill and tax penalties.

Two sides to every story, but no matter how the debate turns out, taxpayers will pay taxes. The tax code is not easily understood and can lead to tax liability issues every year.

Source: Star Tribune, "Minnesota is one of several states weighing shift to sales tax," Adam Belz, March 4, 2013

When tax liability issues arise in Minnesota, our law firm is there to help. Visit our website to learn more.

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