Legislation introduced last week could neutralize Freeborn County’s tax disadvantage to neighboring Iowa counties.

Saturday, February 03, 2001

Legislation introduced last week could neutralize Freeborn County’s tax disadvantage to neighboring Iowa counties.

Rep. Dan Dorman, R-Albert Lea, said he supports legislation that would create &uot;tax-free zones&uot; in distressed areas of Greater Minnesota to stimulate economic development. Dorman thinks Freeborn County is a perfect candidate.

&uot;This could be an important tool to jump start our rural economy,&uot; said Dorman. &uot;We are at a tremendous disadvantage to Iowa. Creating tax-free zones such as this can create a very attractive incentive for new businesses to make a home here.&uot;

Dorman said Iowa residents are subject to a lower sales tax (5 percent) and generally pay lower personal income and property taxes than Minnesota residents.

The bill, introduced Tuesday by House Majority Leader Tim Pawlenty, R-Eagan, establishes an application process through the state’s Department of Trade and Economic Development. Any local government entity could apply, Dorman said, including school districts.

The designation would last up to 12 years. Businesses operating within the zones would be exempt from sales, income and property taxes. Residents of the zones, meanwhile, would only have to pay sales taxes, not personal income or property taxes.

Dorman said the bill not only provides incentive for businesses to relocate to the tax-free zones, it would also generate local investment in the zone businesses. Investors would be exempt on their business income attributable to activity in the zone, as well as capital gain taxes on the zone investments.

In addition, a sales-tax exemption (state and local) is provided for materials, equipment, and vehicles purchased by businesses for use in the zone, and property in the zone is exempt from property taxes.

&uot;With such a significant tax break, priority would be given to areas based on need and likelihood of success in attracting development,&uot; said Dorman. &uot;This is a once-in-a-lifetime economic development tool.&uot;

Pawlenty’s bill would cost the state about $25 million dollars because the rest of Minnesota would pick up the costs of funding the schools and providing services within the zones, said Dorman. Dorman said similar tax-free designations have worked well in states such as Michigan and Pennsylvania.