Growth & Justice Blog

Border sales tax impacts: Do we believe our lying eyes?

Back in 2007 when Growth & Justice was presenting its Invest for Real Prosperity tax proposals to the legislature, I recall a member waxing nostalgically about his parents hauling the family across the North Dakota border to buy untaxed clothing in Minnesota.

The point of his anecdote was that if Minnesota lowered its sales tax and broadened its tax base—as economists recommend—this lucrative cross-border school clothing traffic would dry up, with terrible consequences for Minnesota's border city retailers.

We're hearing a version of the same tale, now that Governor Dayton's tax reform plan has finally taken the advice of both Growth & Justice and Governor Pawlenty's 2009 tax reform commission to lower the tax rate and extend the sales tax base to a broader range of consumer products and consumer services.

This week, Rep. Pat Garofalo objected on TPT's Almanac: At the Capitol. He reported that a North Dakota Democrat was proposing eliminating the state's tax on clothing as a form of tax relief.  

"Retail businesses in border communities like Moorhead will be destroyed," Garofalo said, attracting blogger Dave Mindeman's skeptical response:

Fact: North Dakota sales tax is currently 5.0%. Fargo, ND which is the booming ND metropolis across the river from Moorhead adds a 2% city tax. So here [are] the facts. Under Dayton's tax proposal, Moorhead (which adds no city tax) would be 5.5%. Fargo would charge 7.0% Clothing may be exempt in the future, but Moorhead will still have clothing under $100 exempt as well.

Judging from comments left on the post and on Twitter, the border-crossing mythology is too well-entrenched to be swept away by simple math.

But let's suppose North Dakota finally drops its state clothing tax just when the gap with Minnesota is closing.

Then what? Will Minnesota border towns really suffer? Were North Dakota retailers in the thriving cities of Fargo and Grand Forks suffering in silence all these years?

As the Minnesota legislator said in that 2007 hearing, should I believe you or my lying eyes?

Certainly one person's personal experience can be more persuasive than actual scientific studies—especially when it confirms his biases—but let's push ahead anyway.

As you can imagine, economic theory predicts that consumers will seek to lower the costs of goods where a sufficient tax differential exists along with relative ease of acquiring the products from the alternative source.

We think we see this principle at work with internet sales that make it easy to circumvent state sales taxes—but application to the border situation is clouded because the internet sales are often deeply discounted as well.

Looking at the literature studying economic activity in response to sales tax rates, I found research that supports the following points: 

Response to differences in the sales tax depends on proximity of border communities. In other words, the farther you have to drive to avoid the tax, the less likely you are to do so. 

How much does distance matter? A 2010 Utah study of local option sales taxes PDF* that investigated distance as a variable found increasing the tax rate lowers taxable sales (all else held equal) when there is a jurisdiction with a lower tax rate within 5 km, or about three miles. The effect disappears altogether within about 40 miles. This is to be expected for low-cost goods and everyday commodities. But it also appears to hold for expensive major purchases such as new or used automobiles.

Occasional forays to other markets are probably more memorable than routine local trips to buy the same goods, causing people to overestimate the total economic impact of their trip to buy tax-free products.

 

Clothing purchases appear less sensitive to tax-influenced decisions. When different types of goods are taken into account, several studies found only modest evidence that consumers would alter their consumption or search for lower tax rates on food, clothing and general consumer goods.

Small tax differentials have small effects. Another study based on a natural experiment compared a local option sales tax increase that resulted in a one-half percent difference between neighboring cities. The town with the higher tax rate showed a modest retail sales decline, but drop did not affect the number of businesses, and the reduced sales revenue for the town was more than offset by the increase in tax revenue.

In cases like cigarette taxes, where cross-border differences are large and the product is regularly consumed, we see clear evidence of cross-border activity.

Bottom line, there's some support for the economic theory or it wouldn't be a theory for long, but people tend over-estimate the larger effect of their own behavior and observations.

Dayton's proposal is a target precisely because it takes on the difficult and sometimes contradictory outcomes of tax reform.

Bruce Nustad, president of the Minnesota Retailers Association, for example, doesn't like the clothing tax: “We like the idea of lowering the overall sales tax rate. The tradeoffs, though, are a little difficult for us.”

Which is maybe why there have been so few serious attempts at reform, despite the theories.

—Charlie Quimby

* The state of Utah has wide diversity in local option sales taxes, enabling researchers to study differences between adjacent communities without distorting effects by comparing different states.

Among the five counties that form the urban core in Utah and represent 70 percent of the state’s population, every major city in each of the counties has a different tax rate. In several rural counties, there are no differences in the tax rates within the counties, but in twenty-six of the twenty-nine counties in Utah, 30 percent of the local taxing jurisdictions have tax rate different from each other.

Stunning victory for voting rights and civil rights, and historic perspective on partisan control

Two big obvious takeaways from Nov. 6.

By larger margins than anyone dreamed possible, Minnesotans rejected proposed amendments to the state constitution that would have done damage to voting rights, civil rights and human rights in Minnesota. It truly was a historic day, perhaps a turning point, as Minnesota moves forward to re-establish its reputation as a progressive and tolerant state, one that aims to realize the full potential of all its people.

And as a political reporter whose job it was to offer analysis after elections, I'm wondering whether someone will assess what may be a historic level of partisan control. I've noticed a couple media reports noting that the Legislature and governor's office are in DFL hands for the first time since 1990. But with control now of both U.S. Senate seats (Republicans had both U.S. Senate seats through the 1980s), both chambers in the Legislature, all statewide constitutional offices, and 5 of 8 congressional seats, this may be the most landscape controlled by the DFL since the late 1970s. Hubris and arrogance about a mandate are not advised. In 1978, Republicans swept back in to power with the Minnesota Massacre, in a harbinger of the "Reagan Revolution" nationally two years later.

--Dane Smith

 

Can Minnesota learn from North Dakota's business model? Sure, if we strike oil.

As someone who grew up in oil sale country and spent two summers working oil rigs during college, I often cast a jaundiced eye over claims that combine "economic growth," "business-friendly regulatory and tax climate" and "oil and gas industry."

Chances are, the writer is about to praise a government that is only starting to enjoy its first oil and gas boom before all the social costs have come due. High paying jobs and environmental problems tend to get noticed first, but there are also  housing shortages, crime, new demands of roads, schools and other public systems that cost money (which oil companies cover somewhat) and aggravation, which is almost completely paid for by the residents.

Earlier this month, I ran across a breezy opinion piece in the Duluth News Tribune titled, "A view from North Dakota: Minnesota can learn from North Dakota’s business model," that set off my radar. It began:

My move (from Duluth) to North Dakota and position at the state’s chamber of commerce has allowed me to better understand how and why North Dakota is capturing the nation’s attention with record economic growth and low unemployment rates.

There's nothing like a regular paycheck to allow you to better understand your employer's point of view. But when you promote it in the newspaper, it's a good idea not to get too far outside the facts.

The op/ed has since slipped behind the newspaper's paywall, but it was posted as a comment at Minnesota Brown if you want to read the entire piece. I thought it worth questioning, and wrote the following response, which the newspaper published:

How nice that the CEO of the North Dakota Chamber of Commerce wrote a column for his hometown paper to cheer on Minnesota businesses to imitate North Dakota — or else to simply move there.

Before anyone pulls up stakes for the greener grass across the Red River, let’s look closely at Andy Peterson’s business-climate claims.

He declared the impact of the oil and gas boom is overblown. Why, “only 25 percent of the state’s tax revenue” comes from that industry. Compare that to Minnesota, where mining produced 0.5 percent of the state’s tax revenue in 2011, and where taxes from all corporations kicked in 4 percent.

Peterson wrote, “Of the more than 24,000 jobs available in North Dakota, nearly 66 percent are outside of the oil-producing counties.” Of course they are. The top five counties had barely 20,000 people before the boom began. And consider all the other sectors that depend on oil and gas expansion: trucking, construction, hospitality and even education and health services. How many of those support jobs could find a foothold in the small towns near the oil patch?

Then there was the claim that “North Dakota is a national leader in manufacturing growth.” According to the Bureau of Labor Statistics, the state had a 12-month, 4.6 percent manufacturing growth rate as of April, definitely beating Minnesota’s 1.7 percent rate, but that’s off a small base. Minnesota has 305,500 manufacturing jobs while our neighbor to the northwest just crept over 24,000 in December — up a total of 1,000 jobs compared to 10 years ago.

Take away oil and gas, which has been growing at a 44 percent rate, plus all the employment serving that industry, and the North Dakota miracle looks like nothing to write home about.

The author also made it sound like North Dakota's friendly business and tax climate had induced Minnesota's Marvin Windows and Doors to open three plants North Dakota. While it's true Marvin has expanded in the state, the company itself hasn't made the claim that tax and regulatory concerns drove it there. Back in 2008, when Marvin announced a plant expansion in Grafton, ND, I suggested some other reasons it made sense for the company.

We wish North Dakota good luck with its oil boom. Severance taxes are a great way to export a state's tax burden. But when those state boosters make distorted economic comparisons with Minnesota (even if they're disguised as Minnesota Nice helpful advice), we'll be there to set the facts straight.

—Charlie Quimby

 

Hard work paying off for public schools, despite rising poverty and inequality

More good news for Minnesota and for the thousands of public school teachers and leaders who have been working so hard for so many years to improve achievement and attainment in our education system. High school graduation rates have risen over the last decade, even though our public schools are working with an increasingly poor and economically distressed student body every year. 

America's Promise Alliance released a report this week showing a comparison of 2002 and 2009 graduation rates for the United States. The Building a Grad Nation report confirms that more Minnesotans are graduating from high school than in the past, and the report also shines a spotlight on targeted interventions that work. Download the full report here.

Two specific Minnesota programs are featured in the report:

Mentoring Partnership of Minnesota, for its quality-based mentoring initiative. The QMAP provides a structured and systemic process to assess mentoring programs, with the goal of increasing the quality of mentoring.

Minnesota Reading Corps. Started as a pilot program in 2003, it has become the largest state AmeriCorps program in the country. Its goal is simple: reading by third grade. Growth & Justice supports this goal. (See our Policy Brief on Kids Age 4 to 3rd Grade). Reading by third grade is a key benchmark for America's Promise Alliance as well.

Minnesota's increase in high school graduation is 3.5 percentage points over a span of 7 years. It's a modest amount, but it's promising, after years of stagnation and even decline for some districts and regions. Of the 9 states with graduation rates over 80% in 2002 (in other words, the highest performing states), 3 declined and 4, like Minnesota, made modest progress. Only two states with graduation rates above 80% gained at a higher rate: Wisconsin and Vermont. Wisconsin became the first state to reach 90% graduation (a full 11 years early), and Vermont is nearly there at 89.4%.

Most alarming in the report is the trend in 16 states that shows limited or no growth, and the decline in graduation rates in 10 states. That's more than half the nation not making adequate progress towards higher graduation rates. Some are nearby: North Dakota, South Dakota, Iowa, Michigan, Illinois.

Currently, MInnesota is tied with North Dakota at 87.3%, with only Wisconsin and Vermont graduating a higher percentage of their high school students. This is a success story for Minnesota and even more impressive considering our changing demographics.

Maureen Ramirez

Before you buy the story about Minnesota's high taxes, read this

One of my pastimes is following coverage of tax issues across Minnesota, which means every so often, a letter to the editor like this one pops up in my email. Here's the money paragraph:

[W]hen comparing states with similar geographic and economic profiles, Minnesota extracts substantially more taxes per capita than surrounding states like Wisconsin, Iowa and South Dakota. Total state taxes per capita in 2010 were as follows: Minnesota $3,245, Wisconsin $2,527, Iowa $2,235, South Dakota $1,602 and national average $2,282.

The author uses these "facts" to support his opinion that Minnesota is a “Business Hostile” state that is driving away companies and jobs.

Since the letter writers keep misusing the Census Bureau data — let's be charitable and call them mistakes — I feel bound to keep pointing out why these comparisons are misleading. I hope you will apply these points when you see similar screeds against Minnesota's tax rankings.

1. The problems with per capita comparisons. The Census Bureau itself [PDF] cautions us not to use its  statistics on state tax revenues per capita to compare individual tax burdens. That's because their figures "reflect the taxes a state collects from activity within the state, not necessarily from the individuals within a state.”

States that rely on sales taxes (South Dakota, for example) collect revenues from every tourist who visits Wall Drug, rallies in Sturgis or visits the Black Hills.

States that benefit from severance taxes from mining and oil and gas (North Dakota, for example) collect from the companies doing the extraction, and those companies incorporate those fees in the prices they charge consumers across the country. That's why the letter writer left out North Dakota from his list. The state's per capita taxes were the highest in the region at $3934.

There's a second problem with per capita comparisons. If people make more money, they tend to pay higher taxes. Since Minnesotans make more money per capita, they also pay more.

[Note: The following paragraph has been corrected based on the comment below from MTA.] The Minnesota Taxpayers Association publishes an excellent report called How Does Minnesota Compare? [PDF] that looks at total state and local revenues per capita and as a percent of income. State and local tax rankings are 13th per capita and 14th per thousand dollars of income. However, looking at "own-source revenues" that include non-tax revenues, Minnesota ranks 12th per capita, and 23rd based on income, because of our higher average income. When federal revenues to the states are included, we rank 17th and 32nd, respectively.

2. What’s taxed differs by state. The Census Bureau again: “Different states use different approaches to taxation, and comparing only the total taxes collected by each state is not enough to understand the economic impact of those states’ taxes.”

If we've learned anything in Minnesota after the latest budget battle, we know that states can shift taxes or costs to local governments. The Census Bureau figures quoted above don't take into account local taxation.

Thus, a state like Wisconsin that has higher property taxes levied locally appears to have a lower state tax burden. But when local taxes are included, the gap closes. And when income is taken into account, Cheeseheads rank 15th highest to our 23rd.

3. State revenues are redistributed within the state. In the past year, I've seen the Census Bureau figures quoted in papers serving Park Rapids, Walker and Bemidji.

Guess what? Residents in those regions pay well below average in state income taxes, sales taxes and business taxes [PDF]. Park Rapids' Hubbard County, for example, averages less than $1,650 per capita in total state taxes (vs. $2434 on average statewide) while receiving more that $3,000 per capita in state aids and credits (vs. $2645 on average).

If taxpayers writing letters to those papers still feel they're getting a raw deal, at least now they know what the deal is.

4. Minnesota's taxes don't exactly drive away the wealthy. Before you buy the claim that Minnesota is unfriendly to high earners, look at how those neighboring states compare.

Minnesota has a higher ratio of millionaire households than any of those other states. Here are the rankings as of 2007 [PDF]:

MN 12th
WI 24th
IA 33rd
SD 47th
ND 48th

Yes, we even do better than Florida (18th) and Arizona (21st) where our wealthy snowbirds are supposed to be flocking.

Next time you see "facts" that purport to prove how terrible our tax climate is, take these points into account. And note, we haven't even touched the spending or quality and efficiency of state services.

—Charlie Quimby

Report card is in on the Tax Cut Decade: Not good for most of us

The U.S. Census Bureau's report on "Income, Poverty and Health Insurance Coverage in the United States: 2010," is out and it's worth digging in to the spreadsheets showing year-by-year change over the last 25 years for each state.

More than 500,000 Minnesotans currently are without health care, even more (560,000) are living below the official poverty level (a ridiculously paltry $22,113 for a family of four) and median income in Minnesota ($52,554 in current dollars) has dropped to its lowest level since 1999.  As usual, our rankings relative to the rest of the nation are a little better, but this should be small comfort.

It's important to remember that 1999 gave us some of the largest state income tax cuts in Minnesota's history, sold then as the surefire medicine for long-term economic growth.  Many states followed suit with their own tax cuts, and two years later we were treated to some of the largest federal income tax and capital gains tax cuts in history, also billed as a tonic for long-term job and income growth.   Instead, the next decade was marked by a dot-com bust and a bad recession, a rather weak recovery for all but high-income families, another recession capped by a banking and housing collapse, the worst economic and private-sector failure since 1929, and severe budget shortfalls and ballooning debt at the state and federal level.

Of course, the last decade, increasingly known as the "Lost Decade'' for most Americans and Minnesotans, also was the decade of 9/11, an expensive and dubious "Global War on Terror," rapid technological progress and disruption, accelerating economic globalization, and manufacturing job loss to cheap-labor competitors.  All of these factors surely are related to economic dislocation and travail, and poor and middle-income folks usually can't cope as well with rapid change as the people who are on top, highly educated, and in position to take advantage of economic changes.

But let's not forget that it was anti-government conservatives who made the cause-and-effect case, and still do, that tax cuts are not only a good thing for the economy and general prosperity, but the best and main thing to do, period.  As Ricky Ricardo would say, they have some "splainin' to do.''

Some of the best analysis and interpretation of the Census numbers can be found at the Center for Budget and Policy Priorities, which offers an interesting take on the growth of "deep poverty,'' and the Minnesota Budget Project, which notes that only Michigan had a bigger drop in median income than Minnesota since 1999.

--Dane Smith 

A statement for government redesign, goal-setting, and budgeting for outcomes

Few voices reflect Minnesota's moderate mainstream ethics more perfectly than Star Tribune editorial columnist Lori Sturdevant, and her call-to-action for government "redesigners'' in Sunday's Star Tribune Op-Ex was squarely on target.

 

And this morning Sturdevant hit the note again with a short editorial page item describing a discussion group on redesign that we at Growth & Justice have been part of for a year-and-a-half now. The nucleus of the informal ad hoc group is comprised of current and former presidents of the Citizens League, long considered a premiere civic improvement organization in the Twin Cities and Minnesota. The discussion group includes key leaders in the business community, from nonprofits and foundations and from the conservative think tank, the Center of the American Experiment. Much of the spirit and substance of the group's deliberations can be found on the pages of the Civic Caucus website.

 

Last week as the state government shutdown dragged on and a mutually unsatisfactory budget deal unfolded, our group produced a strong statement urging a commitment and offering specifics toward redesigning our governmental systems.

 

The statement is being shared with top leaders in the executive and legislative branch and will be districtuted broadly in coming days and weeks. Despair and cynicism about our political gridlock is undesrtandable but unnecessary. Recently I wrote a Capitol Report column noting that these actually are not the worst of times, and urging that we emerge from them with a commitment to redesign and invest in better government and measurable results. We can begin, for instance, by setting a 75 percent post-secondary completion goal for our young adults by the end of this decade, which is a top Growth & Justice policy objective.

 

The good news is that on many fronts conscientious Minnesotans, both inside and outside state and local government and in our state employee labor unions, are already working to improve our vital public investments. Let's encourage much more of that, and keep our minds open.

 

--Dane Smith

On taxes, let's recognize business arguments for what they are

For years, Growth & Justice has been looking for and failing to find strong evidence that Minnesota is losing jobs, wealthy residents and businesses due to corporate and personal income tax rates.

Just last month, the Council on State Taxation, an association made up largely of corporate tax attorneys, released a study [PDF] by Ernst and Young that says differences in tax rates are not a main factor influencing businesses to build or hire in one state over another — and that Minnesota ranks 10th best in terms of the competitiveness of our investment tax climate.

Despite this — and absent more than anecdotal evidence of business flight — political figures, business executives and their hired guns always come back with the same line: Higher state tax rates kill jobs and drive job creators and wealth out of Minnesota.

The latest version of this old story was offered Saturday by Ecolab CEO Doug Baker.

But you don't have to take my word for it. According to the U.S. Bureau of Labor statistics, Minnesota employment growth has lagged the U.S. rate for a decade. More than 1,200 small and medium-sized businesses left the state from 1997 to 2008.

There are a lot of factors that influence growth rates, but the 1,200 number was intriguing — because it was so specific and because the state of Minnesota has so little worried about business flight, it hasn't bothered to track such data. I checked the BLS and couldn't find the basis for his figure. I did find BLS figures for business "births" and "deaths" for those years.

During the period cited by Baker, 159,294 business establishments died in Minnesota and even more were created.

If we take Baker's word for his number, we might estimate that about 0.75% of the establishments that died actually moved out of state. And further, based on an estimate of about six jobs per establishment reflected in the BLS data, that Minnesota lost an average of eight jobs a month over the entire period because of business relocation.

Of course, no one can tie the 1,200 to taxes.

It's telling the appeal to data rests on this out-of-context number and a comparative jobs growth rate that slowed after we cut income tax rates.

However, this back and forth makes me realize that the facts don't really matter here. Businesspeople believe what they believe, and that belief will affect their decisions. In a free country they have the right and the power to make decisions that are not in the best interests of the state or its citizens.

It's not any businessperson's job to worry about non-shareholders or to lose sleep over laid-off employees. It's not their responsibility to propose balanced solutions to the budget shortfall or acknowledge the impact of a weaker state university system. It's not even, as we are constantly reminded, a wealthy person's obligation to pay more than they want to or to live in the place where they built their wealth if they are happier elsewhere.

Baker and the Minnesota Business Partnership do exert positive energy about Minnesota as a great place to do business. Some of their policy prescriptions, including early childhood education investment, dovetail with our own. We're fortunate as a state to have CEOs who dig in on big issues.

Minnesotans should not ignore CEOs and retired executives who offer answers to our budget problems. But neither should we let business arguments be the only consideration.

— Charlie Quimby

Budget lessons from Arizona

One great thing about having 50 different states trying to balance budgets is that Minnesota can learn from the mistakes of others. Arizona, for instance.

A year ago, 64% of Arizona voters approved Proposition 100, a three-year, one-percent sales tax increase to fund education, which was to receive two-thirds of the proceeds; health care and public safety would split the other third.

The tax produced less revenue than expected, but that wasn't the biggest snag.

Although the money is directed into specific spending areas, there was nothing in the law to prevent lawmakers from cutting other funds that pay for education, health care and public safety.

And that's what they did as they approved a fiscal 2012 budget.

Gov. Jan Brewer promised early in the session she would "protect" total education funding at the State’s FY 2006 funding levels. In effect, that meant a reduction of $72 million in K-12. Higher education spending for FY 2012 would be "protected" with a $170 million cut.

The Arizona Republic reported then that some high-tech businesses were not too pleased. 

Gov. Jan Brewer and the state’s top lawmakers got a reality check Tuesday from former Intel Chief Executive and Board Chairman Craig Barrett, who told them Arizona’s education system is hindering economic-development efforts. “Quality education is extremely important to a place like Intel,” Barrett said. “(The) education cutbacks don’t bode well for that.”

Barrett said if Intel were starting anew, Arizona likely wouldn’t be in the running for its business. “I hate to say it, but I think Arizona would not be in the top 10 locales to make that investment,” he said.

It got worse. The "compromise" Republican Brewer made with her Republican legislative majorities resulted in a $183 million reduction for K-12 and $198 million less for universities plus a $72.8 million cut in aid for community colleges.

In all, $1 billion of the $1.1 billion in reductions made by the Arizona legislature — beyond the governor's own cuts to close the gap — came from education and health care.

So, to recap the lessons from Arizona:

• Voter initiatives to preserve spending can backfire
• It's hard to protect education if legislators don't believe in the system
• Smart corporations look for quality education over low taxes
• Legislative "compromise" on the budget means the same thing it means here.

— Charlie Quimby

 

Don't count Sunday liquor tax revenues just yet

The latest debate over Sunday liquor sales in Minnesota has featured claims that Minnesota is somehow missing out on $10 million in tax revenues.

Puhlease.

I've debunked parts of this claim via twitter and comments sections, but thought it worth a post because this shows how interest groups can use data to mislead the public and policy makers. I wrote about this when it came up last session and won't repeat myself here.

Let's focus on this commentary by the Distilled Spirits Council published in the Strib with the subhead: "The Sunday ban on liquor sales costs state an estimated $10 million." The author says:

Colorado, the most recent state to enact Sunday sales, even saw its 2008 alcohol excise tax revenue collection increase by 6 percent despite the toll of the recession.

Well, not quite. Colorado's 2008 alcohol tax revenue, according to the state's annual report, only increased by 1.5 percent over 2007. But since Sunday sales took effect July 1, 2008, perhaps the author meant the 2009 fiscal year ending July, 2009. A Denver news report says:

Colorado State Treasury’s data shows that liquor, beer and wine tax revenues increased by $2,056,858 in the 12 months following July 1, 2008, when the bill allowing Sunday liquor sales went into effect.

Now, there may be various reasons why Colorado saw a bump in 2009, but why should we suppose the growth in FY 2009 was due to Sunday sales? Especially when Minnesota's alcohol tax revenues increased almost $3 million between FY 2008 and 09 [PDF], without benefit of adding Sunday sales?

Another claim made in the piece:

A national analysis of states that allowed Sunday sales between 2002 and 2005 (12 states) showed that in 2006 each state saw an average 5 to 7 percent increase in tax revenues.

I have no doubt that's true, since during the same period, Sunday-deprived Colorado saw a 10.3 percent gain and Minnesota saw a 3.3 percent gain.

In other words, revenue from alcohol sales slides around from year to year, and depending on the period you select, you can make the numbers dance your dance.

But the most troubling thing to me is the takeaway the Strib opinion piece is allowed to leave. Even by the Distilled Spirit Council's own estimate, only about half of Colorado's $2 million gain in one year could be attributed to higher liquor store sales. (Two percent of the 6 percent gain was the national average gain and about 75 percent of the alcohol taxes collected come from package liquor stores, according to the Council,)

Allowing for Minnesota's higher alcohol tax rate overall (it takes in roughly double what Colorado does), how do we get to $10 million more in tax revenue with Sunday sales?

We don't.

And if you think the difference is coming from recaptured sales lost to Wisconsin, please comment here so I can debunk that one, too.

— Charlie Quimby

Cross-posted from Across the Great Divide

Footnotes:

Count Sales Taxes, Too?

Since beer and liquor excise taxes are based on volume, not retail price, this revenue doesn't grow with inflation or consumption of higher-priced beverages. So Minnesota also has a 2.5 percent gross receipts tax on alcohol to account for sales growth. Some counties and cities also levy a liquor tax at retail. Excise tax amounts vary by product.

Only these alcohol-related tax revenues are reported by the state in the numbers above, so let's be generous and include the other retail sales taxes applied to alcohol sales in our attempt to justify the $10 million tax figure.

Just as an example, the excise tax on a 6-pack of strong beer is 8.4¢. The total sales tax on a $7.99 6-pack purchased in a Hennepin County suburb this week was 78¢ for a total of 86.4¢.

Counting all the state and local taxes applied to the sale, it would take more than 11.5 million additional 6-packs sold to produce $10 million in new tax revenue. Liquor excise taxes are much higher and would account for a portion of the increase, so obviously we wouldn't have to drink that much more beer.

But you get the idea. The a state that saw its liquor consumption drop by 8.1 percent in 2009 would have to see millions of additional sales with dollars that would otherwise be spent on non-taxable items in order to produce significant new tax revenues.

The Wisconsin Dash

Since it's unlikely Minnesotans will drink that much more if they are given one more off-sale day a week, another theory is that these increased tax dollars will come from Minnesota residents currently buying on Sunday in an adjoining state.

Most of these theoretical sales would have to come from Wisconsin, where the biggest tax differential between states exists — and where Minnesota has a sizeable population within a 20-minute drive to a Wisconsin border town. This is not the case in Colorado, but might be in Connecticut, where the same battle is ongoing, with the Distilled Spirits Council running ads that claim ending the ban will generate $8 million in new revenue per year.

The Distilled Spirits Council champions Sunday sales laws nationally, not the local retail sellers, and is the primary purveyor of the increased taxes story. The industry's own fact sheet [PDF] shows that liquor sales in Colorado were flat from calendar year 2008 to 2009, when the state went from half a year of Sundays to a full year.

No wonder the predicted numbers aren't showing up — the Council is looking for ways to boost its sales.