Businesses vow to seek repeal of warehouse tax

Tracey Baker moves products onto the shelves.
Murphy warehouse personnel Tracey Baker moves products onto the shelves on Friday Nov. 22, 2013. Legislature passed a variety of new taxes on businesses during its last session, including one that will affect warehouse and storage services in Minnesota.
Amanda Snyder / MPR News

State revenue officials have released additional details about how a controversial new warehousing sales tax will work when it's set to take effect on April 1.

But the clarifying guidelines also appear to be adding more fuel to the campaign to try to repeal the tax during the 2014 session that begins Feb. 25.

The Minnesota Department of Revenue guidelines come seven months after lawmakers passed the sales tax that will apply to any business buying storage or warehouse services from another entity. A business will not be taxed for the use of storage facilities that it owns.

State Revenue Commissioner Myron Frans said the tax specifics were developed with the help of business owners and farmers.

"The goal is to make sure that we provide as much guidance and detail to businesses and individuals as we can," Frans said. "I think one of the key elements we've heard time and time again from taxpayers is 'whatever the new rules are, whatever the changes are, please give us as much guidance as you can. Give us examples.'"

The listed examples of taxable services include the storage of non-digital documents, coal, hazardous waste, lumber, liquor and general goods. The exemptions are agricultural products, refrigerated storage, electronic data, self-storage services and petroleum products. Frans said the tax will raise an estimated $95.4 million over the remainder of the current budget cycle.

Richard Murphy, CEO of Murphy Warehouse Co.
CEO of Murphy Warehouse Company Richard Murphy Jr. in Minneapolis on Friday Nov. 22, 2013. The legislature passed a variety of new taxes on businesses during its last session, including one that will affect the warehouse and storage services in Minnesota.
Amanda Snyder / MPR News

Many business owners have been fighting against the warehousing tax since it was first proposed a year ago. Richard Murphy, president and CEO of the Minneapolis-based company Murphy Logistics, said the new guidelines describe a tax that is even broader and more onerous than he expected.

"Most of us had the impression that the storage aspects of warehousing would definitely be covered," he said. "But they have gone on to include what they're referring to as 'other services,' which is often referred to, as they say, 'logistic services.' So they are basically taxing every aspect of the warehousing industry in Minnesota."

Murphy said the specifics of the agricultural exemption were also disappointing. The storage of raw products like wheat, feed corn and vegetables won't be taxed. But modified products like cheese, flour and sugar will.

Beth Kadoun, director of tax and fiscal policy for the Minnesota Chamber of Commerce, also thinks the warehousing tax goes too far. Kadoun said a repeal is needed before April 1 to prevent further harm to businesses.

"We have already heard from companies that have had to make decisions with some of their customers, saying that if this tax would take effect that they won't be able to do business in the state," she said. "We've heard from some companies that because of that have had to expand outside of the state already."

Kadoun is working on the chamber's campaign to repeal the warehouse tax and two other business sales taxes that lawmakers passed last year. The others, which took effect in July, apply to equipment repair and telecommunications.

Gov. Mark Dayton, has said he wants to get rid of the taxes, if the state economic forecast still shows a sufficient budget surplus in February. But Senate Tax Committee Chair Rod Skoe, DFL- Clearbrook, said he isn't ready to make the same commitment.

"It will be discussed within the legislative process as to where best to go, and the governor will have his say on the final outcome because he's going to sign the bill," Skoe said. "So, I'm not committing today that this is the top priority."

Both Skoe and Senate Majority Leader Tom Bakk, DFL-Cook, said their preference is to use surplus revenue to bolster the state budget reserves.