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Minnesota Governor Tim Walz’s new tax proposal would impose a sales tax on legal and financial advisory services, which has sparked intense debate over its fairness and economic impact.
While the plan aims to generate over $200 million annually and lower the state’s sales tax rate from 6.5% to 6.425%, critics argue that it disproportionately affects individual consumers while exempting business-to-business (B2B) transactions.
What’s in the Proposal?
New Tax on Services: Sales tax would apply to legal, financial, accounting, and brokerage services s purchasendividuals.
Sales Tax Rate Cut: Minnesota’s general sales tax would drop slightly to 6.425%.
Projected Revenue: The plan is expected to bring in $136 million in the first nine months and $211 million annually after that.
Who Pays the Tax?
Consumers hiring lawyers, accountants, or financial advisors would be subject to the tax.
Businesses using the same services would be exempt, avoiding additional taxation on corporate legal and financial services.
Criticism: A “Regressive” Tax on Individuals
Legal and financial professionals warn the tax would hurt vulnerable Minnesotans—those who seek legal help in workplace disputes, tax filings, or personal injury cases.
“This tax disproportionately affects individuals while businesses are spared,” said Samuel Edmunds, President of the Minnesota State Bar Association.
For example, if a worker sues their employer for unpaid wages, they pay sales tax on legal fees, while the employer does not pay tax on its legal costs.
Similarly, a senior citizen hiring an accountant for tax filing would pay the tax, but a corporation hiring an accounting firm to maximize tax breaks would not.
Why Exempt Businesses?
State officials argue that taxing B2B services would lead to “tax stacking”—where businesses pass higher costs onto consumers.
“Businesses continually contract out services, and a tax on each transaction would inflate costs,” said Shane Delaney, Assistant Commissioner at the Minnesota Department of Revenue.
Political Battle Over the Tax Plan
Minnesota legislators remain divided on the proposal. DFL lawmakers say broadening the tax base to include services is a necessary step as the economy shifts away from physical goods.
Republican lawmakers call the tax regressive and unfair, arguing that it forces individuals to shoulder more of the tax burden than businesses.
While some exemptions exist—such as legal services for child tax credits, working family credits, and overdraft fees—many Democrats and Republicans remain skeptical about the measure’s overall impact.
What’s Next?
With a 67-67 tie in the Minnesota House, the fate of the tax proposal remains uncertain. Lawmakers are expected to debate possible revisions, including whether to expand the tax to some business transactions or increase exemptions for consumers.
“The economy has changed—services dominate. But we must ensure tax fairness,” said State Sen. Ann Rest, the Senate Taxes Committee chair.
The proposed tax changes would take effect on October 1, 2025, if approved.
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