February 26, 2013
By Scott Litman
While I don’t envy the task of Governor Dayton, or our elected officials at balancing the budget and developing a sound plan for reducing cost and raising revenue, I feel the need to write about the proposed tax on Advertising and Professional services as I’m extremely concerned about the limiting effect this will have on Magnet 360, and the rest of our industry.
As the co-founder of Magnet 360, the fastest growing private company in the state, we have been very fortunate to experience exceptional growth. Last year, Magnet 360 added over 35 new jobs, and this year we plan to add nearly 60 more. These positions are good, high salaried jobs for the State of Minnesota. This proposed tax makes me concerned for our growth plan, and how it will dictate the ability of adding more jobs to our business in the future.
Like many local professional services organizations, we derive a significant amount of business with large, local corporate customers. These corporations have the potential to shift a portion of their business to offices and competitors in other geographic markets. If this proposed tax goes through, Minnesota will be the only market in the country to tax this form of professional services, putting Minnesota’s professional services firms at a significant competitive disadvantage to our out-state rivals. This tax will make the decision easy for many current and future customers to move their business to out of state offices to avoid this premium.
There is a precedent for this concern as this tax was implemented in two other states, Florida and Iowa, and was quickly repealed. In the case of Florida it was found that, “A business located wholly within the taxing state will lose out-of-state sales since its foreign customers can avoid the tax by switching to a supplier in another state.” In only six short months before repeal the job loss across, printing and publishing, communications, and business sectors totaled almost 9,300 employees.
This isn’t just about Magnet 360. Last fall when The Business Journal announced their Fast 50 companies (Business Journals Fast 50), the list was comprised of the fastest growing companies in our state and over 70% are Professional Services firms, most who will be negatively impacted should this tax go through. As a result, this tax will harm the fastest growing sector of our economy, a sector that adds a significant number of high paying jobs.
I am speaking out about this legislation because the forward momentum of our business, and many others like it, has the possibility of being negatively affected. Our belief is that this proposed tax will lose the state of Minnesota far more than it could ever hope to gain.
If you feel as I do, now is the time to get involved! Be vocal about the Advertising and Professional Services Tax and write to your legislators to let them know how you feel. You can find your representatives in the State House and Senate here.
 (Francis, James. Florida Sales Tax: What Really Went Wrong, 2003)