The Fate of the 2016 Tax Bill Rests on Two Really Quirky Issues

“Conjunction Junction, What’s your function?”

 “Messin’ up tax bills and summer vacations…”

                                   Schoolhouse Rock (adapted)

Especially for an off-budget year, there is a lot riding on this year’s tax bill.   Tax relief for farmers, parents, college indebted students, and businesses,  a significant expansion of the state Working Family Credit, and new cash for city and county governments just to name a few things.    But all this is in limbo thanks to a couple of odd issues which demonstrates that the old proverb “for want of a nail” also applies to the world of policy making.

The first is the now well publicized use of an incorrect conjunction which puts over $100 million of dedicated Vikings stadium revenue in jeopardy.  By using the word “or” instead of “and” in a technical provision pertaining charitable gaming tax administration, just about any gambling facility would be able to define itself as a bingo hall and qualify for a big tax break.   All parties were quick to excuse the Office of the Revisor for this mistake and for good reason; it’s frankly astonishing this doesn’t happen far more often especially in the highly stressed, time constrained circumstances in which these individuals work.  It’s a tribute to their skill and professionalism that stuff like this doesn’t happen much more often.

But be that as it may, it presents a major problem because, according to Revenue officials, this is not a situation where an ambiguously written statute can be administered with the assistance of legislative intent.    That’s because the language as written would withhold a tax benefit and create a higher tax rate for some taxpayers.   Legislators must adopt a technical correction or else a 10% gross receipts tax on suite rentals will be necessary to fill the stadium-funding gap.

The other issue is no less strange, albeit in a different way.    In his transmittal letter to legislative leaders Governor Dayton has declared one condition for calling a special legislative session is that legislators must reauthorize the sales tax exemption tickets for high school sporting events sponsored by the Minnesota State High School League.      According to reporting by the Star Tribune, the Governor blamed House Republicans for not including the tax provision, accusing them of seeking retribution for the league’s 2014 policy that opened up girls’ sports to transgender athletes.   House and Senate tax chairs offered a very different story – it was a minor provision that was only included in the Senate bill and just didn’t get attention and discussion amidst all the other larger competing tax and budget issues.  

Political accusations and rebuttals aside, there’s a mystery to solve here.    According to the Strib, “the exemption, which expired last summer, generated roughly $800,000 annually, which helped defray the cost of participating in sports for low-income families.”   Which begs the question:  how can a sales tax exemption raise revenue for anything?

To understand this we need to go back a couple of decades.    Tickets to regular season school games have been exempt from the sales tax since 1985.   But sales to tournaments, post season games and events sponsored by the Minnesota State High School League were taxable.     In 2006 that exemption was also extended to MSHSL league events for 5 years, and renewed for another 4 years in 2011.  The exemption expired as of July 2015.

But at the same time the exemption was adopted this showed up in the Twins Stadium bill:

Beginning July 1, 2007, the Minnesota State High School League shall annually determine the sales tax savings attributable to Minnesota Statutes, section 297A.70, subdivision 11, and annually transfer that amount to a nonprofit charitable foundation created for the purpose of promoting high school extracurricular activities. The funds must be used by the foundation to make grants to fund, assist, recognize, or promote high school students' participation in extracurricular activities. The first priority for funding will be grants for scholarships to individuals to offset athletic fees. The foundation must equitably award grants based on considerations of gender balance, school size, and geographic location, to the extent feasible.

So in essence, from mid 2007 to mid 2015, even though sales tax was not being collected from MSHSL events, we essentially pretended a sales tax was built into the ticket prices but transferred that money instead to the MSHSL foundation instead of government to support sports participation of low income families.    But when the exemption expired in 2015, the MSHSL faced both the prospect of funding this program and paying the tax.  

What could be done to address this concern?  There are actually other options outside of extending the current exemption including:

  • Nothing.   There is nothing stopping  the MSHSL from continuing to transfer 6.875% of its gross receipts to support this worthy cause
  • Raise ticket prices 6.875% to cover the lost revenue.  For some reference that bumps an adult ticket to the hockey championship session by a little over a buck.   Rounding the ticket price up $1.25 would make the MSHSL money.
  • In the spirit of community giving, ask the Vikings if they would be willing to redirect a fraction of the sales tax exemption for personal seat licenses to this cause

There seems to be no reason this tiny tax expenditure should ever jeopardize a multi-million tax bill.   Fortunately, House leadership appears willing to reinstate this exemption.

So the only question is whether there will be a way to make these non-controversial changes.   Would a special session be held just for these two issues to get a tax bill passed?   Would they be folded in as leverage in a more ambitious special session to cover transportation and bonding?    The fate of the tax bill hangs on the answers to these questions.