That’s a puzzling question.  Why should taxes determine where you obtain dentistry?  We believe most of us might wonder what role, if any, taxes play in what state you can choose your dentist.  The whole idea seems silly.  Unfortunately, it is a real issue when it comes to one or two Minnesota taxes.

Here is a case in point.   Over the weekend, we were socially talking before an event started with a charming couple and it turned out they spend seven months out of each year in a southern state.  We bemusingly said to them why would they do that we knew darn well that it involved tax residency, as you can learn with resources from an Accounting blog and others.

The wife who is just a lovely down-to-earth person went on to mention that it did cause problems for her because she couldn’t find a dentist in that southern state that she liked as well as her Minnesota dentist but that she wasn’t allowed to use the Minnesota dentist.  What?  That’s crazy isn’t it?  You betcha!  However, it is a reality–she feels that she cannot keep her Minnesota dentist.  Big Brother Minnesota Revenue is waiting in the weeds.

Catch on yet?  Sorry to be nebulous.  We wanted to create a little suspense before pouncing on the issue.  The weekend, June 17-18, 2017 Wall Street Journal surfaced this question in an article titled “More States Are Killing the Estate Tax”.  The article does touch on Minnesota increasing its exemptions some but that’s a subject for another day.  Yes, the lovely lady mentioned above can’t use her Minnesota dentist because of the Minnesota estate tax helped along with the extraordinarily high 25% increase in the state personal income tax enacted in 2013.  We call that the “Edina Tax”.

It’s all about state tax residency.  Our Minnesota Revenue has something like 26 tests to assign state residency to you even when you physically live in another state.  What they are saying is if you meet some of their tests such as getting your medical care here, using other professional services such as legal, accounting and financial advisory-you haven’t really left Minnesota so they can come after you for taxes as if you are a resident living here.

That is a very popular political position to take-soak the presumably wealthier individuals.  Make them pay their fair share.  So, we nail the rich boys, but what do we do to the working class individuals here if we drive the wealthiest out of state? What do we do to our other tax collections such as income and sales?  Are there other collateral damages such as lesser charitable contributions, business formations, job creation and a slower economy for all of us that are left here?

We’re sure the couple cited above would spend more money in Minnesota if they were here oftener or didn’t have the fear of being classified as residents.  Why wouldn’t we welcome them to use Minnesota services from wherever they live and spend money here that will fall into the tax stream and benefit those who do work for them?  If non-residents or former residents want to spend money here for anything, please let them do so without trying to game them into residency status.

Political posturing is a magnificent thing.  We don’t think it does much for most of the people here regardless of their income status.  It possibly hurts the so-called little guy more than one would be led to believe.  The extra-high individual income tax bracket of 9.85% and the estate tax in general we believe are overall negatives to Minnesota’s tax revenue collections.  There are consequences to what we do in tax policy whether we like it or not.

Where do we stand?  What is our answer?  We believe it would be wise and in our best economic interest for the Minnesota legislature to repeal the 2013 Edina individual income tax bracket of 9.85% and eliminate the estate tax in its entirety.

Minnesota is losing working age taxpaying people from age 35 years and up.  We are losing seniors and their wealth.  The IRS data show us as net losers of taxpaying population. We need to convincingly address this problem.  The two changes recommended above would be a good start.

Bob Smith 3^rd

Gopher State Politics Institute