Taxes committee considers governor’s sales tax changes, other proposals

Gov. Tim Walz wants to lower the state’s sales tax rate by 0.075%. But the lost revenue from that change would be more than made up for by new sales taxes on accounting, banking, brokerage and legal services, according to Revenue Department estimates.

That’s all part of the governor’s tax bill, HF2437, which is being carried by Rep. Greg Davids (R-Preston) and was presented to the House Taxes Committee on Wednesday.

The committee laid the bill over, as amended, and will consider its provisions for possible omnibus bill inclusion.

“In light of very tough budget times, this is a responsible and practical tax bill,” said Revenue Commissioner Paul Marquart. “It really looks to create a more fair and stable tax system while also creating new economic development and new jobs.”

In addition to changes it would make to individual income taxes, corporate franchise taxes, property taxes, and local government aids, the bill would make accounting services, banking and brokerage services, and legal services all subject to sales taxes. And it would lower the state’s effective general sales tax rate to 6.8% from its current 6.875%.

The bill would also:

• expand the tax credit for sustainable aviation fuel;
• repeal the option to assign a refund in advance of claiming the K-12 education credit on a tax return;
• eliminate the political contribution refund;
• make the research credit partially refundable;
• modify transfer provisions for the short line railroad credit;
• establish a specific tax levy for airlines;
• clarify the definitions of electrical attachments and appurtenances for property taxes;
• modify provisions for leased tax-exempt property;
• reduce the appropriation for aquatic invasive species prevention aid by 50%;
• reduce payment in lieu of tax amounts by 34% and clarify there are no cost-of-living adjustments;
• modify provisions for certificates of rent paid;
• reduce the annual per acre payment for land enrolled in the sustainable forest incentive program;
• repeal local government cannabis aid and partial cannabis tax revenue dedication; and
• repeal provisions related to tax filing modernization.

The Revenue Department estimates that if the provisions are adopted it would increase revenue by $60.7 million in fiscal year 2026, that number growing to $136.8 million in fiscal year 2027.

The expansion of taxes on accounting, banking, brokerage and legal services is projected to add $136.3 million to the General Fund in fiscal year 2026, while the reduction in the state’s general sales tax rate would reduce it by an estimated $61.9 million.

[MORE: View the spreadsheet of the governor’s proposals]

Among the 19 testifiers on the bill, there were considerably more negative comments than positive, particularly from those in the financial planning, banking and legal industries who expressed disapproval with the idea of raising taxes on their services.

And those speaking for the state’s counties expressed strong concern that the reduction in payments in lieu of taxes (or PILT) amounts will cause a larger burden to fall upon the state’s counties and, consequently, its property taxpayers.