Disabled veterans among those helped in tax bill

ST. PAUL -- Minnesota income taxpayers and military veterans could benefit from a tax bill lawmakers passed Thursday and rushed to Gov. Tim Pawlenty for his approval.

The bill puts Minnesota in line with new federal tax policies and includes other measures that were part of a larger, controversial tax package Pawlenty vetoed last year.

DFLers, who control the Legislature, said it was important to get the bill to Republican Pawlenty as soon as possible. For income taxpayers, making state law more closely follow federal tax will make it easier when they file tax returns this spring.

"The sooner this gets done, the better," Senate Taxes Chairman Tom Bakk, DFL-Cook, said.

Senators approved their version of the tax package 63-2 Thursday. The House passed its bill earlier this week, and then voted overwhelmingly to accepted changes made by the Senate. That prevented prolonged negotiations between the two chambers.

State Revenue Commissioner Ward Einess said Pawlenty supports the bill lawmakers finalized.

The bill adds some new tax deductions to the state's tax code. The changes will save Minnesotans $6 million on their state income taxes this year, Bakk said.

Rep. Dean Simpson of Perham, the top House Republican on taxes, said the main thrust of the bill is federal conformity, but the final package has other good policies.

"This is a compromise bill," he said.

An estimated 9,700 disabled veterans would see property tax exemptions under the bill, while National Guard members and military reservists serving outside Minnesota could see tax deferments.

Some lawmakers objected to the bill's inclusion of local sales tax provisions for Duluth and Bemidji, but not for other cities.

Duluth could increase its sales tax on food and beverages to 2.25 percent, from 1.5 percent, to repay a loan on the Duluth Entertainment Convention Center and the Great Lakes Aquarium.

Allowing Bemidji to continue collecting a local sales tax would help pay for a new events center. The city also is seeking state bonding for construction of the events center. Assistant House Majority Leader Frank Moe, DFL-Bemidji, said that if the state dollars are not approved for construction of the events center, Bemidji's City Council will decide whether to continue imposing the local sales tax.

House Property Tax Chairman Paul Marquart, DFL-Dilworth, is sorry major property tax relief was not included in this year's tax bill, as it was in the bill Pawlenty vetoed a year ago.

"It takes most of the other things from last year's bill," Marquart added.

Several controversial items that contributed to a Pawlenty veto of the 2007 tax bill were removed from this year's package.

They included five local sales tax provisions, including for Cook County and Proctor, and a proposal to include inflation in state budget forecasts. A plan to provide more state aid to local governments also was removed from the bill.

Also, the House proposed increasing property tax rates on utilities in some areas of the state to stop what lawmakers say has become a shift onto residential property taxes. The Senate removed the provision to appease Pawlenty.

"Of all the issues we discussed over the last few months, it was the issue the governor had the most pushback on," Bakk said.

Democratic Sen. Steve Murphy of Red Wing, whose legislative district includes the Prairie Island nuclear plant, said property taxpayers in his hometown will see tax hikes so that big utility businesses can get tax breaks. He voted against the bill because it lacked the utility change.

"Our communities are getting slobberknockered," Murphy said.

Republicans were unsuccessful in more than a dozen attempts to significantly change the bill, including a Senate GOP attempt Thursday to provide tax exemptions for construction costs on 15 wastewater treatment facilities, mostly in rural Minnesota.

Sen. Joe Gimse, R-Willmar, said that would have helped his hometown with its wastewater project, and it could boost economic development in other rural communities.

"Any relief that we can give them would be hugely beneficial," Gimse said.

Bakk said that with the state facing a budget deficit, it cannot afford such provisions. The state would lose revenue if those tax exemptions were allowed.

Both legislative chambers rejected Republican attempts to block state aid payments to cities that prevent local law enforcement from checking a person's immigration status. Senators stopped that amendment 35-29 on Thursday; it failed by a narrower margin in the House.

Two western Minnesota communities that suffered flooding lost out in final legislative negotiations over the tax bill.

Brown's Valley, extensively damaged by a flood last year, would have received a boost in its Local Government Aid payments from the state.

Crookston would get a $200,000 LGA increase to help pay to rebuild after flooding.

The bill does provide Mahnomen County and city and schools $600,000 annually to make up for the property tax loss due to the White Earth Band of Chippewa owning land in the city for a casino.

The bill also continues subsidizing some property taxes in western Minnesota cities to attract businesses. The $704,000 would be split among Moorhead, Dilworth, East Grand Forks, Breckenridge and Ortonville. The program has been on the books for years, but requires approval every two years, to help compete with lower property taxes in North Dakota and South Dakota.

Rep. Sandy Wollschlager, DFL-Cannon Falls, said without the tax change for utility property, residential property taxes will increase in Red Wing and other communities. She opposed the bill on a procedural vote, but supported it on final passage.

"We'll try again," she said of the utility measure.

Bakk said he will put forward another tax bill yet this year that will include those local sales taxes to "make another run at getting them done this session."

Murphy said he will try to include the utility tax rate provision in that bill.

Bakk acknowledged that bill will be more controversial and Pawlenty's support would be less certain.

Einess, the state's revenue chief, agreed: "I got a feeling that second bill might be a little bumpier."

State Capitol Bureau reporter Don Davis contributed to this story. Davis and Scott Wente work for Forum Communications Co., which owns the Bemidji Pioneer.