ST. PAUL, Minn. -- Lawmakers are considering dropping the state sales tax rate, but -- as part of the same legislation -- expanding the sales tax to clothing.
Sen. Ann Rest, the New Hope Democrat who chairs the Tax Reform Committee, told KARE the goal of the legislation is to bring stability to the overall tax system.
"We have shied away from looking at the other tax systems we have, and we've gotten ourselves in a mess on account of that," Sen. Rest told KARE.
"This is not necessarily raising more revenues, but trying to really get to the heart and core of what is good tax policy in the 21st Century for our state."
Her proposal is contained in two bills at this time, including Senate File 9 and Senate File 11. Both bills will get their first hearing on Wednesday at the State Capitol.
The bills do not specify how far the statewide sales tax rate would drop from the current 6.5 percent level. Much of that will depend on revenue projects and research still underway by staff.
In theory, taxing a larger array of items would enable the state to collect the same amount of revenue using a lower rate. And, Rest asserts, make the state less vulnerable to year-to-year fluctuation in sales activity.
"There's pretty universal agreement in Minnesota that our tax system is broken," Rest said. "That's why we have to take a good look at not only how much total we collect, but where it's coming from and whether that fits with what I'll call the 'new economy.'"
Rest is considering two approaches to help protect lower income consumers from bearing a disproportionately high share of that new tax burden.
One would be to exempt the first $200 of each clothing article from the sales tax. Another would be to apply the tax to all items, regardless of price, but to provide lower income families with a clothing tax credit when they file their state income taxes.
Senator Dave Thompson, the ranking Republican on the tax committee, said favors tax reform that involves simplifying the tax code. He said the bills that are pending, at least in their current form, don't accomplish that goal.
"Anytime you institute a new tax it tends to creep and tends to expand," Sen. Thompson told KARE.
"My guess is before long, a year or two or three or four, you'd see that exemption get smaller regular folks will get hit on regular taxation."
The legislation defines clothing as "any human apparel suitable for general use."
It then lists specific examples of what items also constitute clothing, as follows:
Clothing includes, but is not limited to, aprons, household and shop; athletic supporters; baby receiving blankets; bathing suits and caps; beach capes and coats; belts and suspenders; boots; coats and jackets; costumes; children and adult diapers, including disposable; ear muffs; footlets; formal wear; garters and garter belts; girdles; gloves and mittens for general use; hats and caps; hosiery; insoles for shoes; lab coats; neckties; overshoes; pantyhose; rainwear; rubber pants; sandals; scarves; shoes and shoe laces; slippers; sneakers; socks and stockings; steel-toed boots; underwear; uniforms, athletic and nonathletic; and wedding apparel.
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