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(AP) - Shoppers and smokers might have to plunk
down more pocket change at the cash register to improve Minnesota's
business climate, under a proposal released Friday.

      The plan from the Governor's 21st Century Tax Reform Commission
would raise cigarette taxes by as much as $1 a pack and expand the
6.5 percent state sales tax to items like winter coats, jeans and
other clothes and services such as haircuts and tax preparation.


      The money from consumers would pay for slashing business taxes
by more than $900 million a year by 2011 - repealing the corporate
income tax and offering businesses other tax credits and
exemptions. The cuts are aimed at making Minnesota more competitive
at drawing jobs.


      First reactions from state leaders - including Gov. Tim
Pawlenty, who appointed the 15-member commission - were tepid.


Pawlenty spokesman Alex Carey said the GOP governor wants to make
Minnesota more business-friendly but isn't embracing the proposal
to expand the sales tax.


      "He does not like the idea of raising sales taxes on
consumers," Carey said in an e-mail.


      House Speaker Margaret Anderson Kelliher also had reservations.


      "It's interesting to raise taxes on Minnesotans to pay for a
corporate tax cut for people who may not even be Minnesotans,"
said Kelliher, who added that she plans to study the report.


      Minnesota doesn't collect sales tax on groceries, clothing,
prescription drugs, home heating fuel, over-the-counter consumer
needs like antacids and cold medicines, newspapers, textbooks and a
long list of other items. 

Services not subject to the sales tax
include accounting, chiropractic care, production of TV commercials
and veterinary care.


      The report avoided recommending which goods and services should
be taxed, but said food, home heating fuel, prescription drugs and
motor fuels should remain untouched.


      The commission's call for doing away with the corporate income
tax went beyond Pawlenty's proposal to cut the tax in half over six
years.


      "If you do it in steps, it's not going to happen," said former
Sen. Bill Belanger, a Republican who served on the commission.


      The full slate of business tax breaks would add up to $300
million the first year and about $900 million to $1 billion a year
after that, said commission chairman Mike Vekich.


      "You put all of these together and you create investment and
you create jobs," Vekich said at a news conference near the
Capitol.


      Panel member John Spry, a business professor at the University
of St. Thomas, said business taxes are inefficient and ultimately
paid by consumers. He said consumers would be helped more by a
healthy business climate than by keeping sales and cigarette taxes
where they are now.


      Pawlenty announced the panel a year ago in his State of the
State address, and filled it out with mostly business executives.
Five of the members - including Vekich, an accounting firm owner -
were past campaign contributors.

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2025 Minnesota legislative session

A business-oriented tax panel created by
Gov. Tim Pawlenty wants to eliminate corporate income taxes while raising the cigarette tax and broadening the sales tax.

Minn. panel recommends business tax cuts

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