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Published June 10, 2013, 12:45 PM

Companies at Minnesota-North Dakota border critical of taxes

MOORHEAD, Minn. (AP) — Minnesota businesses along the North Dakota border say hikes in Minnesota's property, sales, gas and cigarette taxes are making it nearly impossible for them to compete with businesses across the state line.

MOORHEAD, Minn. (AP) — Minnesota businesses along the North Dakota border say hikes in Minnesota's property, sales, gas and cigarette taxes are making it nearly impossible for them to compete with businesses across the state line.

Minnesota Public Radio News reported Monday that while Minnesota has raised taxes, North Dakota's booming economy due to oil revenue has allowed lawmakers to cut taxes there. While some Minnesota businesses are critical of the increases, University of North Dakota economist David Flynn said there's not much evidence that shows tax disparities can kill a business.

"When it makes a difference, they move or they change their business tactic," said Flynn, who has studied the border business climate. "When it doesn't make a difference they complain, but we don't see a noticeable change, a business shuttering the windows or anything of that sort."

One business owner, Brady Olson, took to the airwaves to protest the higher taxes, which he says are cutting into his service station's profits. His 30-second radio spot criticizes lawmakers for raising taxes and says Minnesota is turning his business "into a tax collection business."

Olson was especially critical of the higher cigarette tax. Minnesota legislators increased that tax by $1.60 a pack — so as of July 1, total taxes on a pack of smokes in Minnesota will be $2.83 per pack. North Dakota's cigarette tax is 44 cents per pack.

Olson expects to lose some customers, who he says will likely buy gas at the same place they buy cigarettes. And the gasoline tax also cuts into his profits. "Every gallon they sell they're gaining a two- or three-cent advantage," he said. "That's a huge advantage."

Moorhead Mayor Mark Voxland said staying competitive with North Dakota is a perennial problem.

"It's always a challenge being a city like Moorhead across from a huge economic engine like Fargo," said Voxland, who also owns an electrical contracting company. "We work very hard to have some sort of balance. We don't want the difference in tax rates to be so great that nothing could possibly happen in Moorhead."

Lawmakers set aside $1.5 million in credits for communities along the North Dakota and South Dakota borders. Moorhead uses its portion to help companies pay workers' compensation insurance premiums, and offer other small incentives, such as paying for the sales tax on building materials for new businesses.

State Rep. Paul Marquardt, DFL-Dilworth, said Minnesota's higher taxes allow legislators to invest in public facilities and education, and lawmakers try to offset the difference by providing border cities aid and funding programs to help businesses. One program allows Minnesota service stations within seven miles of the North Dakota border to reduce the gas tax, but not enough to eliminate the disparity.

"Is there a concern on trying to keep things competitive? Yes," Marquardt said. "But the bottom line is we're never going to be able to match the tax rates of North Dakota if we're also going to be able to provide the quality of life in terms of high education, lower property taxes, good infrastructure, that we need to provide for businesses."

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