House Taxes Committee hears Governor’s tax plan, debate centers on sales‑tax expansion and R&D refundability

The House Taxes Committee heard Governor Tim Walz’s proposed tax package, House File 2,437, with Paul Marquart, commissioner of the Minnesota Department of Revenue, presenting the measures and explaining revenue estimates and policy goals.

The proposal includes several high‑profile items: a targeted expansion of the state sales tax to selected professional and personal services while reducing the base rate slightly, a 25% refundable portion of the state R&D tax credit, changes to payments in lieu of taxes (PILT), reduced payments for the Sustainable Forest Incentive Act (SFIA), adjustments to aquatic invasive species funding, and a sustainable aviation fuel (SAF) incentive. The bill also would repeal the political contribution refund program and suspend the tax filing modernization account connected to a pilot direct‑file initiative.

"It really looks to create a more fair and stable tax system while also creating economic development and new jobs," said Paul Marquart, Commissioner of the Minnesota Department of Revenue. Marquart said the administration designed the package to shift the tax base incrementally toward a more service‑heavy economy and to use targeted incentives to spur research and development and sustainable aviation fuel production.

Key fiscal points presented by Marquart included an estimated $99 million annual reduction from the proposed 0.075 percentage‑point cut in the statewide sales tax rate and an estimated $215 million in revenue from expanding the sales tax base to selected services in the first year, producing a net gain in that period. The commissioner told the committee the expansion targets services such as accounting, legal, certain financial services, and personal services but deliberately exempts business‑to‑business transactions to avoid tax pyramiding. The department said most expanded categories would take effect for sales after Sept. 30, 2025.

The refundable R&D credit (refundability capped at 25% of excess…