Governor's tax package would cut state sales-tax rate slightly, expand taxable services; R&D credit partially refundable

Paul Marquardt, commissioner of the Minnesota Department of Revenue, presented the tax provisions of Governor Tim Walz and Lieutenant Governor Peggy Flanagan’s budget to the House Tax Committee. The centerpiece is a small state sales-tax rate cut tied to an expansion of the sales-tax base to include many services now untaxed.

Marquardt described the proposal as a rate cut from 6.5% to 6.425% for the state portion, paired with taxing additional services that would broaden the base. He said the change would be effective for sales after Sept. 30 if enacted. The commissioner said the governor’s proposal “cuts the rate and expands the base,” and called it “a long overdue improvement to the sales tax code.”

Key provisions presented by the commissioner:

- Sales-tax change: Reduce the state sales-tax rate and expand the tax to many consumer-facing services, including certain professional services such as legal, banking and accounting, and some brokerage and investment-advisory charges. Business-to-business transactions and services used as inputs in production would remain exempt, Marquardt said. He added carve-outs to protect some items: services tied to filing the…