Veterans see tax break as way to make Minnesota competitive

Published 8:17 am Monday, May 30, 2016

ST. PAUL — Two days after the Minnesota legislative session ended in chaos, Bob Dettmer sat silently as a small group of military veterans in the State Office Building gave him a round of applause.

After almost a decade of work, a provision to remove Minnesota’s tax on a military veteran’s retirement pay was tucked away in a 600-page budget bill and the Republican representative from Forest Lake was closer than he’d ever been to seeing it become a reality.

The retired Army reserve warrant officer had repeatedly tried to repeal the tax for veterans in Minnesota in an effort to make the state both more attractive to retired veterans and more livable for those already here.

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Now, that budget bill sits on the desk of Gov. Mark Dayton, who was expected to take Memorial Day weekend to consider the entire package before making a decision next week.

Veterans and some lawmakers have long pushed to exempt military retirement pay from the state’s income tax. They argue it’s one of many reasons Minnesota can’t compete with other states for veterans who, upon leaving the service, are told which states are the friendliest to them.

“Minnesota will be on that list now as one of the best places,” said Dettmer, adding that the state’s strong education system and quality of life make it attractive but high taxes have made it a tough sell.

There are about 370,000 military service members currently in Minnesota, but only 19,000 retired veterans, a fact advocates say is because other states are more appealing for former service members. If Dayton signs it into law, Minnesota will go from being one of the only states that taxes an entire military pension to one of at least 12 that tax none of it.

“The rest of the states have not been idle in this process,” said Dan Severson, a former Republican state representative who began trying to repeal the tax in the early 2000s before passing the baton to Dettmer.

Some of those who have opposed the exemption in the past argue it would shift more of a burden onto other, younger taxpayers and that the exemption wouldn’t draw as many retired veterans as advocates hope.

Combined with another new provision that bumps a tax credit for lower-income and disabled veterans up to $1,000, removing the tax on the pension fund is estimated to cost the state about $25 million in the next two-year budget cycle. Veterans can decide which piece to use when doing their taxes, although most who qualify will likely choose to be full exempt.

Ben Johnson, the interim legislative director of the Minnesota Department of Veterans Affairs, told the Military Action Group, the military advocacy group that Dettmer leads, earlier in the week that compromise from both sides freed the pension tax after so long. He said the governor’s office asked for $25 million for preschool funding and that that was key to getting the tax break for veterans.

“It was both parties being willing to give and take,” he said.

For Dettmer, the issue is deeply personal. He served in Kuwait as a warrant officer after his Army reserve unit was called up following the 9/11 terrorist attacks. His sons, twins who both graduated from the United States Military Academy at West Point, now serve in the Army and the National Guard.

Sitting in front of the group of veterans Tuesday morning, Dettmer said they’ve made significant progress, but there’s still much more to do.

“Now we can tell our veterans: Minnesota’s a place to come, to retire here, to raise your family here,” he said.