State Capitol Bureau

ST. PAUL - Minnesota income taxpayers and military veterans could benefit from a tax bill lawmakers passed Thursday and rushed to Gov. Tim Pawlenty for his approval.

The bill puts Minnesota in line with new federal tax policies and includes other measures that were part of a larger, controversial tax package Pawlenty vetoed last year.

Democratic-Farmer-Laborites, who control the Legislature, said it was important to get the bill to Republican Pawlenty as soon as possible. For income taxpayers, making state law more closely follow federal tax law will make it easier when they file tax returns this spring.

"The sooner this gets done, the better," Senate Taxes Chairman Tom Bakk said.

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Senators approved their version of the tax package 63-2 Thursday. The House passed its bill earlier this week, and then voted overwhelmingly to accept changes made by the Senate. That prevented prolonged negotiations between the two chambers.

State Revenue Commissioner Ward Einess said Pawlenty supports the bill lawmakers finalized.

The bill adds some new tax deductions to the state's tax code. The changes will save Minnesotans $6 million on their state income taxes this year, Bakk said.

Rep. Dean Simpson of Perham, the top House Republican on taxes, said the main thrust of the bill is federal conformity, but the final package has other good policies.

An estimated 9,700 disabled veterans would see property tax exemptions under the bill, while National Guard members and military reservists serving outside Minnesota could see tax deferments.

Some lawmakers objected to the bill's inclusion of local sales tax provisions for Duluth and Bemidji, but not for other cities.

Duluth could increase its sales tax on food and beverages to 2.25 percent, from 1.5 percent, to repay a loan on the Duluth Entertainment Convention Center and the Great Lakes Aquarium.

Allowing Bemidji to continue collecting a local sales tax would help pay for a new events center. The city also is seeking state aid for construction of the events center. Assistant House Majority Leader Frank Moe, DFL-Bemidji, said that if the state dollars are not approved for construction of the events center, Bemidji's City Council will decide whether to continue imposing the local sales tax.

Republicans were unsuccessful in more than a dozen attempts to significantly change the bill, including a Senate GOP attempt Thursday to provide tax exemptions for construction costs on 15 wastewater treatment facilities, mostly in rural Minnesota.

Two western Minnesota communities that suffered flooding lost out in final legislative negotiations over the tax bill.

Browns Valley, extensively damaged by a flood last year, would have received a boost in its Local Government Aid payments from the state.

Crookston would get a $200,000 LGA increase to help pay to rebuild after flooding.

The bill does provide Mahnomen County and city and schools $600,000 annually to make up for the property tax loss due to the White Earth Band of Chippewa owning land in the city for a casino.

The bill also continues subsidizing some property taxes in western Minnesota cities to attract businesses. The $704,000 would be split among Moorhead, Dilworth, East Grand Forks, Breckenridge and Ortonville. The program has been on the books for years, but requires approval every two years, to help compete with lower property taxes in North Dakota and South Dakota.

State Capitol Bureau reporter Don Davis contributed to this report

Wente works for Forum Communications Co., which owns The Forum. He can be reached at (651) 290-0707 or