Governor Mark Dayton Announces FY 2014-2015 Budget Proposal

by Winthrop & Weinstine, P.A.
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Governor Mark Dayton released his FY 2014-2015 Budget proposal this morning. The Governor’s Budget reflects the starting point for the five month legislative process in which the House and Senate will assemble Minnesota’s budget for the FY 2014-2015 which begins on July 1, 2013 and runs until June 30, 2015. The Governor’s Budget can be found on the Minnesota Management and Budget website which is located at http://www.mmb.state.mn.us/budget2013/index.php

Impact on Revenues

While it will take days and weeks to fully comprehend the impact of the Governor’s proposals, it is important to start with a look at the macro numbers of his budget. With his recommended changes, the Governor is proposing to increase revenues by a total of $2.127 billion dollars or a 5.9% increase. The Governor announced comprehensive changes to how Minnesota collects taxes and from whom they are collected. Here are the highlights as reflected on the materials handed out at the press conference:

Individual Income tax changes cost $308 million

New Top Tier Income Tax Bracket: The Governor recommends creating a new 4th tier income tax bracket. The new marginal rate of 9.85% will apply only to taxable income above $250,000 for married joint filers, $125,000 for married separate filers, $150,000 for single filers, and $200,000 for head of household filers. This will raise an additional $1.1 billion in new revenues and will be applicable for tax year 2013.

Property Tax Rebate: The Governor recommends creating a property tax rebate to all Minnesota homesteads. The rebate equals the lesser of $500 or 100 percent of the homestead's previous-year property tax bill. This will cost $1.4 billion.

Snowbird Tax: The Governor recommends extending the income tax to persons who are present in the state for more than 60 days but less than 183 days and who maintain an abode in Minnesota for at least six months. This raises $30 million in new revenue.

Sales and Use tax net change will raise $2.1 billion

Sales and Use Tax Reform (base expansion)raises $4.2 billion: The Governor recommends that the sales tax rate be lowered to 5.5 percent and the base expanded. Revenues from the base expansion will be used to reduce the existing sales tax rate on all items. Adjustments to the sales tax base include applying the sales tax to:

affiliate nexus sales, digital goods, parallel taxation of direct satellite services and remote access software for an increase in General Fund revenue of $31.2 million in FY 2014-15;

selected goods and consumer services, including clothing on items over $100, admissions and memberships, over-the-counter drugs, personal care services and instruction, legal, accounting, and auto and other repair services for an increase of $1.06 billion; and

business services, such as legal, accounting, architecture, specialized design, computer, management consulting, advertising, employment, and business support services for an increase in General Fund revenue of $3.2 billion.

In addition, tax exemptions for selected items will be repealed, such as telecommunications equipment, court reporter documents, advertising materials and publications, for an increase of $134.5 million. The sales and use tax changes will be effective for purchases made after January 1, 2014.

Sales and Use Tax Rate Reduction costs $2.1 billion: The proposal recommends reducing the overall sales and use tax rate from 6.875 percent to 5.5 percent effective January 1, 2014.

Motor Vehicle Rental Tax costs $15 million: The Governor proposes to increase the car rental tax from 6.2 percent to 9.05 percent.

Corporate Income tax changes cost $5 million

Corporate Tax Base Expansion raise $323 million: The Governor recommends several changes to the corporate franchise tax.

Corporate Tax Rate Reduction costs $319 million: This change would reduce the corporate franchise tax rate from 9.8 percent to 8.4 percent effective January 1, 2013.

Expenditures are Increased

With the $2.127 billion in new revenue, the Governor uses a little over half, or $1.096 billion, to address the budget deficit while the rest, $1.031 billion for new spending. His spending initiatives are as follows:

K-12 Education increased by $298.8 billion: The Governor increases special education funding, funding to All-Day Kindergarten, and the K-12 basic education formula.

Higher Education funding increased by $250 million: The University of Minnesota and the MNSCU system see funding increased.

Health and Human Services increased by $128 million: The Governor increases funding to medical education (MERC), technology systems modernization, and health care eligibility and accessibility.

Jobs and Economy increased by $100 million: The Minnesota Investment Fund and the Transportation Economic Development Program get funding increases.

Children Initiatives increased by $93 million: The Governor increases funding for early learning scholarships and child care services.

Public Safety and Courts increased by $73 million: The Governor increases funding in these areas.

Legislative committees will immediate begin hearings on the Governor’s budget. Look for updates on this site as this process continues.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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