By Max Nesterak
Senate Taxes Chair Ann Rest, DFL-New Hope, didn’t need much time to shoot down the “skinny,” 12-page tax bill proposed by Minnesota legislative leaders as they rush to button-up a two-year budget deal, without which the state shuts down at the end of the month.
“I rejected it right off the bat,” Rest said in an interview Monday. “As soon as I saw it, I told them I couldn’t vote for that and neither could half a dozen other Senate Democrats.”
The text of the bill was posted on Sunday, but Rest said it’s been obsolete since Friday morning when she expressed her opposition and asked that they continue working toward a deal.
Rest’s rejection raises the prospect of a two-year budget agreement without a tax bill, which isn’t necessary for ongoing government operations but would leave a bevy of lawmakers and interest groups fuming, their hopes for special tax treatments foiled.
The 12-page document largely maintains the status quo with a couple notable exceptions agreed to weeks ago: increasing the sales tax on cannabis 50% and repealing the electricity tax exemption for power-hungry data centers.
Those will still be in any final package, Rest said, but the “skinny” bill leaves out noncontroversial but nevertheless important policies.
For instance, more than a dozen cities are awaiting approval for local tax increment financing districts aimed at spurring development.
The skinny bill also leaves out continuing tax credits for sustainable aviation fuel, which has bipartisan support but was was absent from the leadership agreement signed off by Gov. Tim Walz, Speaker Lisa Demuth, R-Cold Spring, Speaker Emerita Melissa Hortman, DFL-Brooklyn Park, and Senate Majority Leader Erin Murphy, DFL-St. Paul.
Republican co-chair of the House Taxes Committee Greg Davids of Preston also unequivocally rejected the proposal in an interview with MPR News.
“We put five months of thought into something they put five minutes of thought into, and I know which one’s going to be better,” Davids said. “I’m just not sure why any Republican would even consider voting for this. I don’t think it would pass (the) House or the Senate.”
While the taxes working group was meeting in public, negotiations have moved behind closed doors and will likely remain so until a deal is reached, Rest said.
Building trade unions and business groups are banking on lawmakers extending sales tax exemptions for data centers on equipment purchases even as they sunset exemptions on electricity. They hope by extending the equipment sales tax exemption into the next century, the state will entice Meta, Amazon and other tech giants to build data centers in Minnesota.
The tax incentives are particularly important to the construction unions after lawmakers failed to reach an agreement on a public infrastructure package for the second year in a row. Building one large data center can cost upwards of $1 billion — more than an entire public infrastructure package — and create upwards of 1,800 construction jobs, according to a study of Wisconsin.
Opponents argue that tech giants will build data centers in Minnesota regardless of the tax incentives leaving regular taxpayers to subsidize some of the richest companies in the world at the expense of investing in schools, nursing homes and infrastructure.
The state expects to bring in an additional $56 million in tax revenue over the next two years by repealing the electricity exemption. The state will still exempt data centers from sales tax on equipment and software through 2042, which is expected to cost more than $200 million in forgone sales tax revenue over the next two years.
Amazon recently announced that it’s suspending plans for a large data center in Becker “due to uncertainty” — one week after lawmakers announced they were eliminating the sales tax exemption on electricity.
Lawmakers have also agreed to raise the tax on retail cannabis sales from 10% to 15%, pushing the total sales tax above 20% across the state when local and state sales taxes are added.
The tax hike would land before the state has even issued any cannabis sales licenses, although it has been collecting taxes on THC beverages and low dose edibles. Just one dispensary would be subject to the tax increase: The White Earth Nation opened its first off-reservation store in Moorhead last month after negotiating a compact with state leaders through a process exclusive to tribes.
State lawmakers voted to legalize cannabis in 2023 with a relatively low sales tax compared to other states, arguing that a higher tax would allow the black market to survive, and that cannabis sales should not generate funding for unrelated budget items.
The 15% rate would push Minnesota toward the higher end of taxes compared to the 23 states with legal cannabis sales, according to the Tax Foundation.
The bill would also repeal a law that sends a fifth of cannabis tax revenue to cities and counties to fund local enforcement costs.
Minnesota Reformer is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Minnesota Reformer maintains editorial independence. Contact Editor J. Patrick Coolican for questions: info@minnesotareformer.com.
