18 DC VELOCITY JUNE 2014 www.dcvelocity.com newsworthy

The public warehousing industry in Minnesota dodged a bullet in late March, when state lawmakers repealed a law imposing a 6.875-percent sales tax on virtually all aspects of a public warehouse’s activities. However, the executive who led the charge against the law warned recently that the industry must stay vigilant because revenue-hungry states could be loading similar bullets in their chambers.

Gov. Mark Dayton repealed the tax March 21 as part of broad-based legislation providing $616 million in tax relief. The tax, which was to take effect April 1, had also been levied on the telecommunications and farm equipment repair sectors. The taxes on the latter two industries, which had taken effect last July, were also rescinded under the March law.

State lawmakers approved the measure in the spring of 2013 during the last three weeks of the 2012–13 legislative session. The tax was projected to raise $95.4 million in the 2014–15 fiscal cycle and $184.4 million in the 2016–17 period, according to estimates from the Minnesota Department of Revenue. In Minnesota, a fiscal year extends for two calendar years.

The timing of the move stunned the public warehousing industry, which didn’t expect any action given that Gov. Dayton and the state House of Representatives had already stated their opposition to the measure. Richard T. Murphy, president and CEO of Murphy Logistics, a third-party logistics service provider based in the Twin Cities, said Sen. Rod Skoe, chair of the state Senate tax committee, was the principal driver behind the bill’s passage.

What made the Minnesota bill so significant to public
warehousing interests was that it was the first time a state
had targeted the industry with a sales tax on virtually all fac-
ets of its business. Three states—New Mexico, Nevada, and
South Dakota—tax public warehousing as part of a broad
array of levies on business-to-business services. A fourth,
Mississippi, singles out the sector, but does not tax goods
warehoused in the state if they are moving in interstate
commerce. The state also exempts the warehousing of per-
ishable commodities. In Minnesota, the only exemptions
were given to so-called “freezer warehousing” operations,
digital storage, self storage, and motor and recreational ser-
vices. The tax did not apply to the operations of privately
owned and operated warehouses.

Murphy said executives were dumbfounded that lawmakers would target their industry given that Minnesota is hardly the geographic hub for goods movement throughout the U.S. “This isn’t the center of the universe from a distribution standpoint,” he said.

ALL-OUT LOBBYING EFFORT

The all-encompassing nature of the Minnesota levy prompted the state’s public warehousing industry to assemble a coalition that spent nearly a year lobbying lawmakers. The coalition commissioned consultancy KPMG to produce a study showing that implementation of the tax would crimp profits of warehouse logistics practitioners, drive existing business to neighboring states that don’t have a tax, and cause companies that were considering relocating to Minnesota to go elsewhere.

To coalition members, this was more than just a local battle; they believed their efforts had national implications given that all states,

especially those strapped with leg-
acy retiree pension and health-care
costs, are constantly looking for
new ways to raise revenue. “We all
saw this as a litmus test” of how
effective public warehousing inter-
ests could be in marshaling their
resources to defeat a potentially
crippling levy, Murphy said.
Murphy said most Minnesota-
based warehouse logistics compa-
nies operate at net profit margins of 3 to 5 percent. Many
couldn’t absorb a new 6.5-percent sales tax and remain
profitable, he said. Murphy reported that several customers
told him they might have to move their operations out of
state if the tax became law. Prospective customers plan-
ning to relocate to Minnesota said they would not follow
through with their plans if the tax took effect, he added.
The tide turned in favor of the industry early in 2014
when it became clear the state was running a sustainable
surplus and didn’t need to raise the additional revenue if it
meant damaging the competitiveness of several industries,
including warehousing. Murphy also gives credit to the coa-
lition members, who worked to convince lawmakers of the
importance of their industry in maintaining the health of
Minnesota’s economy and the quality of life of its citizens.
—M.S.