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January 14, 2013 09:50 PM

Expanding Minnesota's Sales Tax

luverne, mn

The Mall of America says it will stop tourists from coming to Minnesota and plans to fight the proposal to start a state sales tax on clothing. And that's not the only sales tax proposal the legislature is considering. 

Before Lavish Designs opened last spring in Luverne, there weren't any clothing stores left on Main Street.

"As terrible as it sounds, the only competition we have is Shopko; so they don't have to drive to Sioux Falls. We have a lot of clothing the buckle carries," owner Amanda McTigue said.

McTigue says the fact that there is no tax on clothing in Minnesota keeps the locals here to buy her jeans, rather than driving the 20 minutes or so across the border to Sioux Falls to get them. It also draws out-of-staters in.

"I have a lot of clients from South Dakota. They met me at vendor fairs and because they realized we don't have sales tax, they come over here," McTigue said.

Minnesota is one of seven states that doesn't tax clothing and McTigue says imposing a six or seven percent tax would kill her competitive advantage.

Right now, the most expensive items at Lavish Designs are jeans for about $50 or boots for $65.  The proposed legislation would only tax clothing over $200.  However, McTigue is worried it is opening up a very slippery slope. 

"If they start doing it I think we'll see repetition; and it will eventually come to us," McTigue said.

Minnesota's tax exemption list not only includes clothing and other necessities, but also a long list of consumer services.   Haircuts are one of them and the owner of Salon 75 doesn't want a new tax.

"I'd like to see it not happen because it's just another tax on top of all the other taxes we have already; so I'd like to see them find it somewhere else other than this because this is something Minnesota can offer as a state," Salon 75 owner Faye Bremer said.

Salon 75 says low prices along with the tax savings also draws customers from Sioux Falls to Luverne; but that could change.

"It will be something passed onto the consumer because that's how that works. That would be something we'd have to look into and think about," Bremer said.

Supporters say taxing clothes and other services could bring in enough money to actually lower the state sales tax rate overall.

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