BEMIDJI – The more Bill Batchelder reads about Gov. Mark Dayton’s budget proposal, the more he doesn’t like.
That’s partly because a key piece of the tax plan laid out last month would affect the business that’s been in his family for four generations and almost 100 years.
“I’m upset about the whole deal,” said Batchelder, the owner of Bemidji Woolen Mills.
Dayton is proposing expanding the state sales tax, including to clothing items priced more than $100, while lowering the overall rate from 6.875 percent to 5.5 percent. Clothing is currently exempt from sales tax in Minnesota, which retailers say draws tourists from neighboring states.
Dayton’s administration has said that the expansion is meant to broaden the tax base and more fairly tax the changing economy. Haircuts, auto repairs and business-to-business services would be among newly-taxed items.
Minnesota is one of the few states that exempts clothing from sales tax. A bill was recently introduced in the North Dakota Legislature to make clothes exempt from sales tax.
The idea of adding a sales tax to clothing has generated pushback across the state. Representatives for the Mall of America have said that the lack of a sales tax drives many shoppers to its stores.
But other retailers aren’t as opposed.
Gary Zerott, the owner of Cool Threads in Bemidji, said that considering the tax would only affect clothes priced at more than $100, it wouldn’t affect his bottom line much. He said most of the merchandise in his store cost less than that.
“At first I was dreading it,” Zerott said. “If they do the $100 and over, that won’t affect me much at all, unless somebody buys a leather jacket.”
Sen. Rod Skoe, DFL-Clearbrook, is chair of the tax committee and said the sales tax on clothing proposal, like the rest of Dayton’s plan, will be discussed in committees by lawmakers in the coming weeks. He pointed out that the clothing sales tax is part of a larger proposal.
“We’re not operating in isolation on any of this,” Skoe said. “We’re trying to figure out how to make sure that our tax policy in Minnesota is more progressive instead of less progressive.”
Skoe said the intent of the $100 figure in Dayton’s proposal is to lessen the impact on low-income earners. But he noted that there’s the potential for “mischief” if, for instance, a retailer sold the pants and suit separately for $99 to avoid the tax.
“There are things to talk about,” Skoe said.
Batchelder, a delegate to last summer’s the Republican National Convention, said many of the items priced more than $100 at his store are American-made, which makes the tax proposal another hit on small businesses and manufacturers here.
“We are all a fragile, interwoven web of the last remnants of American manufacturing,” Batchelder said.
Sen. Ann Rest, DFL-New Hope, introduced two bills before Dayton’s budget was released that would extend sales tax to clothing. One would charge a tax to all items priced more than $200 and the other would tax all clothes, but provide a tax credit to consumers.
While a sales tax on clothing still has a long way to go through the legislative process, Batchelder is preparing for its effects.
“We’re going to hunker down, we’re going to save money, we’re going to do what it takes to take care of our customers,” he said.