Minnesota Department of Revenue Commissioner Myron Frans visits WorthingtonWORTHINGTON — Minnesota Department of Revenue Commissioner Myron Frans spoke with about 30 local officials and residents on ways to improve the state tax system on Monday at the Worthington Fire Hall.
WORTHINGTON — Minnesota Department of Revenue Commissioner Myron Frans spoke with about 30 local officials and residents on ways to improve the state tax system on Monday at the Worthington Fire Hall.
The information gathered will be sent to Gov. Mark Dayton to be considered for his tax reform plan — due out in late January.
The commissioner started by explaining the current system and its history, as well as how it relates to other states and the federal system.
In the demonstration, he used three-legged stools to visually show the streams of state tax revenue — income, sales and property.
One stool was balanced, with each leg representing one-third of the total tax revenue.
The other stool representing the actual system as it was in 2010, was unbalanced. Property taxes served as the longest leg, which demonstrated 40 percent of the total revenue. Income tax represented 33 percent and sales tax represented 27 percent of the total.
The system as it stands is “out of date, out of balance and not as fair as it should be,” Frans said.
Regarding fairness issues within the system, Frans said many Minnesota businesses lose out on sales to online retailers because online retailers don’t have to pay a sales tax if the business is located out of state.
“Internet sales should also have a sales tax, but that’s a federal issue,” Frans said. “$400 million a year is lost because sales taxes aren’t being collected.”
There’s been a shift in consumer spending, with more people spending money on services, rather than goods, he explained. Currently, goods are taxed more than services.
Referring to Worthington Mayor Alan Oberloh’s question about expanding sales taxes, Frans said an expanded base would generate more revenue, but what to do with that revenue is questionable. If sales tax rates increased, Frans said property and sales tax rates could go down.
He went on to say the demographics are changing across the state.
“We’ve got to keep young people here, and attract them to Minnesota,” Frans said. “The income tax stream will be challenged in the future if we don’t.”
The middle class is shrinking while the lower class is getting larger, he said.
Combining sales, property and income tax, Frans said the middle class is taxed at about a 12 percent rate, while the top two percent of the population pays less than 10 percent in state taxes.
“We have the most complicated property tax system in the U.S.,” Frans continued.
Referring to the complexity within the system, Frans said a sales tax is charged when you buy a CD at the store, but not when you download the same music online. Also, there’s a tax on Milky Way candy bars, but not on Twix bars because they contain flour — which makes it food rather than a candy bar.
“The growing number of breaks is a concern because the more holes in (the system), the more everyone has to pay,” Frans said. “Every dollar we tax, 40 cents of that is off the table because of tax breaks.”
Along with reforming the tax system, Dayton’s plan is to increase jobs, develop a balanced budget and make government more effective, Frans said.
One citizen commented that government spending is out of control and needs to stop.
Spending concerns have been raised at each of the meetings, Frans said, adding a budget needs set that the public would agree with.
“We’re generating revenue that will match the budget,” Frans said. “We had $2 billion in cuts last year. We’re working on what we can to save money. We have to think more like a business.”
To achieve tax reform, Frans said it will take commitment from the governor, the public and state legislators.
Responding to an audience question about the timeline, he said they are putting the pieces together now, and will form more of a complete report in December after the November Forecast is released.
“Our entire goal was to make it real,” Frans said. “Then let the legislature debate it and talk about it to get a consensus.”
So far, Frans said more than 6,000 people have attended the 141 tax reform meetings around the state.
The tax reform presentation may be found online at www.revenue.state.mn.us.
Daily Globe Reporter Kayla Strayer may be reached at 376-7322.