DFLer Kelliher aligns with state Republicans on tax repeal push

Republican state lawmakers have gained a surprising ally in their push to use a potential special session on disaster relief next month to repeal some recent tax law changes.

Former Speaker of the House Margaret Anderson Kelliher, a Democrat who is one of the state's leading broadband advocates, agrees with Republican leaders that Minnesota should eliminate a new sales tax on telecommunication equipment purchases.

The tax, approved by the DFL-controlled Legislature this spring, is one of three taxes on the Republican repeal list.

Kelliher, chair of the Gov. Mark Dayton's Broadband Task Force, wrote the governor last week about the tax, which affects big companies, like CenturyLink and Comcast, and dozens of smaller entities throughout the state. She wrote that the tax will likely result in less spending on new infrastructure and fewer jobs related to those projects.

The estimated $75 million in taxes collected over the next two years will mean an equal amount not spent on the things needed to improve Internet and cell phone service in rural areas, said Kelliher, also the director of the Minnesota High Tech Association.

Kelliher noted that the state has an aggressive goal of having border-to-border broadband by 2015, a goal it is not on track to meet.

"This doesn't help speed our way to get there," she said of the tax.

Kelliher said lawmakers eliminated a sales tax exemption that task force members wanted expanded to cover more types of telecommunications equipment, such as fiber-optic cable. She said they want lawmakers to restore the exemption in a special session, or as soon as possible.

"They see it as something that Democrats and Republicans both should be behind," Kelliher said. "This I think is a case where being able to correct this and take it back and make it the way it had been for about a decade or more, makes a lot of sense."

For the moment, Kelliher's recommendations match those of Republicans, not Democrats.

Dayton wants to call a Sept. 9 special session to provide disaster relief to 18 counties hit hard by June storms. He also wants to approve a farm machinery exemption to a new tax on business equipment repairs.

House Speaker Paul Thissen, DFL-Minneapolis, and Senate Majority Leader Tom Bakk agreed to that two-item agenda, and say there's enough money available to offset the $28 million needed for the farm exemption. But Bakk, DFL-Cook, said that's the only tax he's willing to revisit.

"Beyond that, things get awful expensive," Bakk said. "The farm piece is a very small piece that we thought there would be some bipartisan agreement for, so we'll see. But anything beyond that and you start probably dipping into the budget reserve to pay for things, and that I don't support. We finally got the state budget's structural problems fixed, and I'm not interested in going into the budget reserve to provide tax relief for people. That's not what it's for."

But Republicans are holding out for more. In addition to the telecommunications tax, they want to repeal the entire tax on business equipment repairs as well as a new tax on warehousing services.

If the Legislature were to repeal all three taxes, that would create an estimated $314 million hole in the current two-year budget.

Senate Minority Leader David Hann, R-Eden Prairie, said last week that he has some ideas for plugging that hole, but he declined to offer specifics.

"What we suggested is that if we commit to try to find a way, then we can have a full discussion about that, but there are ways to do it. We've got a $38 billion budget, whatever it is, $300 million or some lesser piece of that. We can find that if we want to do that."

House and Senate leaders are expected to meet with the governor again Wednesday to try to agree on a special session agenda. They're also trying to determine whether they can avoid a special session by redirecting unused state aid that was allocated for previous disasters.

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