Minnesota businesses wait to pay tax hike as deadline approaches

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Most Minnesota business owners are waiting until the last minute to pay a large payroll tax hike triggered when state lawmakers couldn’t agree on a solution.

About 130,000 businesses owe between $350 million and $400 million, but fewer than half have submitted their paperwork and fewer have actually paid the tax, according to Minnesota economic development officials. April 30 is the deadline to submit payments for the first quarter of 2021.

Gov. Tim Walz on Wednesday slammed lawmakers from both parties for their inaction, calling it “absolutely ridiculous” the lawmakers’ failure to agree to avoid taxes or offer bonuses to workers who were on first COVID-19 pandemic line.

“This should have been the easiest deal in Minnesota political history,” Walz said during a media event at a Minneapolis grocery store.

State law requires taxes to be increased whenever Minnesota’s unemployment insurance fund falls below a certain level of reserves. Minnesota economic development officials estimate that $2.74 billion is needed: $1.44 billion to repay a debt to the federal government for a bailout during the pandemic, and $1.3 billion to replenish reserves and undo the fiscal trigger.

About 100 business leaders fanned out in the state Capitol on Wednesday, pressuring lawmakers to fill the unemployment fund.

“Minnesota is an outlier state. It has to be competitive,” Minnesota Chamber of Commerce President Doug Loon told reporters. “If we don’t fix this, Minnesota businesses will be at a disadvantage.”

But nine days before the tax deadline, there are few signs of an imminent deal. While Walz and Senate Republicans have requested the full $2.74 billion, House Democrats are supporting $1.8 billion, which would pay down debt while providing a smaller reserve cushion.

House DFL leaders say the Legislature could also change state law to reverse the tax increase despite the smaller cushion.

“It’s kind of crazy that Senate Republicans are so willing to throw $2.7 billion, which we don’t need, to corporations to freeze unemployment insurance tax rates, but they don’t want to provide less than half of that to workers who have kept us through COVID-19,” House Speaker Melissa Hortman, DFL-Brooklyn Park, told reporters Thursday.

Walz economic development officials and Senate Republicans have long said the full amount is what is needed to erase the tax hike. Loon said he hadn’t seen the $1.8 billion proposal, but was interested in any legislation that avoided a tax hike.

The legislative session is due to end on May 23. Walz pledged not to call lawmakers back for a special session if they can’t reach agreements on this or a variety of other issues by then.

“There is no special session,” he said. “Do your job. Do it.”

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