Divided Minnesota lawmakers likely won't stop tax increase on businesses

The Minnesota Legislature is about to blow past March 15, the date Gov. Walz's administration had targeted as the last day to prevent a $2.7 billion tax increase on businesses by refilling Minnesota's unemployment insurance fund. 

Twice this week, legislative leaders have gone to Walz's office for last-minute negotiations. Both times, they left no closer to a deal.

Minnesota was among many states that drained their unemployment funds during the COVID-19 pandemic to pay workers thrown off the job because of business closures. The federal government stepped in with loans, but now the state owes $1.3 billion. State law triggers automatic tax increases to pay off the debt and put $1.4 billion into the account for future jobless benefits.

The Senate has already passed a $2.7 billion tax break, and Walz supports it. But Democrats who control the House want $1 billion of pandemic worker bonuses in exchange. Thursday night, an attempt to force a vote in the House failed.

"I’m wearing my dog and pony show tie today," John Reynolds of the National Federation of Independent Business said at a news conference. "I wear this when things start to get ridiculous around here. And that’s where we are today."

The Walz administration said businesses will start sending quarterly payments on March 15. The payments will include an average tax increase of 30 percent as required by state law unless lawmakers act.

"Delaying past March 15 creates confusion for businesses, and it might take months to recalculate bills and provide refunds to businesses who overpay," Minnesota Economic Development Commissioner Steve Grove tweeted Friday.

Grove's tweet was in response to House Democrats, who say businesses should simply hang onto their payments for several more weeks. State law provides businesses a grace period to make their quarterly payments until April 30.

"It is not a hard deadline," said House Speaker Melissa Hortman, DFL-Brooklyn Park. "If you look at Minnesota statute regarding unemployment insurance, the quarterly payments by employers are not due until April 30. So, we have until April 30 to come to a resolution on this issue." 

Refilling the unemployment fund was once expected to be an early legislative deal, but it has turned into a fight instead. Business owners said they are frustrated by the uncertainty. 

Kris Gruhot, who runs D&G Excavating near Marshall, said she expected a $26,000 tax increase. Her company is a high utilizer of the unemployment fund because of the seasonal nature of the excavating business. Businesses that lay off workers more frequently pay a higher tax rate.

Gruhot said the tax increase would come on top of higher fuel costs, which have doubled in the past year.

"This is just another assault on our bottom line, and we have to try to figure out how to make this up," she said. "I honestly don’t know how."

Gruhot said she planned to wait until April 30 to make her quarterly payment.

But business groups said other companies will want to pay the tax sooner because they've budgeted that way. They shouldn't have to wait for a potential legislative deal in late April, the groups said.

"Us sending a message out, 'Don’t pay your bills,' – that’s not a good message," Minnesota Chamber of Commerce President Doug Loon told reporters. "Businesses pay their bills. And when they get a bill that’s above what they paid last time, they’re going to be surprised." 

House Democrats have been stymied in their request for $1 billion in pandemic bonuses for workers because Senate Republicans oppose the idea. Walz said this week that lawmakers should quickly pass both, using the state's $9.3 billion projected surplus and $1.1 billion in unspent federal COVID aid.

"If the Senate Republicans were willing to give frontline workers the bonuses they deserve and they have earned, we could pass this all today," Hortman said.