Klaehn: Tax system should be business-friendly

A local business owner is calling for the state of Minnesota to make big changes to simplify the state’s “huge, confusing tax system.”

For years, Kyle Klaehn, owner of Double K Specialty Inc., has tried taking his grievances with the state’s sales tax system and audits to state leaders.

While Klaehn applauded Gov. Mark Dayton’s recent push to look at ways to fix the current tax issues, he believes the governor is going about it the wrong way. Some plans call for clothing more than $100 to be taxed, but there’s no software readily available to companies to help simplify things.

“In my opinion, they’re continuing to add to the problems they’ve already got without fixing the problems,” Klaehn said.

To him, the current sales tax system is overly complex.

Double K sells many types of animal feed. While horse feed is non-taxable, things like poultry, beef, swine and rabbit feed may or may not be taxable.

In many cases, if an owner is raising the animal to sell, taxes are required. If an owner is raising an animal for recreation or to eat the meat, the feed is not taxable.

But for other animals, it’s taxable either way.

“It’s all over the board, but it’s my responsibility as a retailer that I need to be sure that I do it right,” Klaehn said.

Klaehn’s solution: Make the sales tax universal, but lower the rate.

“Maybe the best answer for all of this would be to tax everything,” he said.

Sales tax currently doesn’t apply to online sales, and Klaehn is also calling for leaders to change that to even the playing field.

“The Internet not having sales tax is a disadvantage to every business in the state of Minnesota,” Klaehn said. “It gives [online businesses] a competitive edge.”

He admits the online dominance on sales is probably more due to convenience than taxes, but it still plays a role.

Klaehn especially takes issue with the state’s audit of business’ sales tax by the Department of Revenue. According to Klaehn, the state is adding more opportunities for auditors to use loopholes in a way that brings in more revenue and makes auditors look good.

“It’s so complicated that it creates, in my opinion, an auditor’s dream for increasing revenue, because of the complexity and the loopholes that an auditor knows about,” he said.

Klaehn said the aggressive sales tax audits are a strain on businesses and may even be causing some businesses to close.

He said the state has no way of knowing how many businesses have closed because of overly-aggressive state audits.

“If they’re going to implement something, they better be able to analyze the results,” Klaehn said.

When a business doesn’t pay a tax correctly, the business must pay the tax and is penalized. And Klaehn said audits aren’t helping the situation.

The audits, in Klaehn’s mind, should be more about correcting future taxes and not punishing businesses for mistakes. The key, he said, should be working with businesses to correct the issues.

“We’re all in this to try and do it right,” Klaehn said.

A few years ago, Klaehn took his concerns about sales tax to Rep. Jeanne Poppe and Sen. Dan Sparks, both DFL-Austin. He cautioned them his experiences in the audit process could hurt the state more than it helps, and he asked to be able to meet with the Department of Revenue.

After meeting with the legislators, Klaehn was scheduled to meet with the Minnesota Department of Revenue before a meeting was called off at the last minute because he was in an on-going audit, he said.

He’s been trying to meet with other state leaders and the governor.

While Klaehn is pleased to see the state discussing changes to the sales tax system, he doesn’t think they’re currently going about it the right way. As Klaehn sees it, Dayton’s initial proposals for raising the sales tax by taxing things like high-end clothing will only make things more complex.

“I think it’s politics as usual,” Klaehn said. “Which has gotten us to the problem we have with the politics to begin with.”

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