Governor Dayton came out with a budget proposal that includes a sales tax on items of clothing that are over $100.  When I think of clothing over $100 I still think of the Dayton’s department store.  Maybe they changed their name to Macy’s, but it will always be Dayton’s to me. 

The sales tax proposal in his budget actually reduces the rate from 6.85% to 5.5% but it broadens the items subject to the sales tax.  Newly included items are clothing over $100 and professional services like legal and accounting services including business to business services.  For the sales tax on clothing, the devil is in the details.  What if a jacket is $150 but you have a 35% off coupon.  Is that subject to sales tax?  What if you “buy one get one half-off” on something that was $150?  For businesses to program their computers and understand all the nuances will be a difficult challenge.  First the Department of Revenue will need to clarify all these scenarios and then businesses will have to decipher them and try to comply.  If it passes, it will surely be a huge hassle to implement and you are sure to hear from the Mall of America how much they dislike the whole idea. 

But wait a minute…didn’t that sales tax also apply to professional services?  But that’s people like me! Noooooooooooo!  This proposal to have sales tax on accounting services has popped up before only to be shot down so we will have to wait and see what happens this time.  This sales tax on professional services also includes business to business transactions, but we all know that the final cost will be paid by the individual consumer.  The business community is generally against this sales tax on professional services because in today’s modern world it would be easy for companies to setup their professional services in a nearby state that would not be subject to sales tax, basically making their services 5.5% cheaper.  It’s not practical for Boyum & Barenscheer to shut down and move across the border to Hudson, but what about the big firms?  They could just shut down their MN branches and transfer the work to their offices in WI or ND to avoid the sales tax.  What a mess that would be!

For now it’s just a proposal, but the Democrats do control both the House and the Senate, so these sales tax proposals have a real chance of becoming law.  For now we will wait and see what happens, but I will keep you updated when they do act.