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New Minnesota Sales Tax May Necessitate Better Warehouse Management


A recently introduced law in Minnesota levies a separate tax on warehouses, and facilities operators in the state may have to more frequently use warehouse management software to deal with additional costs.

In May, Governor Mark Dayton signed into law a new sales tax expansion to help close Minnesota's budget hole. Part of this includes a warehouse tax, which dictates that facilities in the state must pay a 6.875 percent tax. This excise, when it goes into effect next year, will be the first of its kind in the nation.

"Eliminating the sales tax break for warehousing allowed the state to pay for two good things: (1) elimination of the sales tax that cities and counties pay to the state (while raising property taxes to do so), and (2) elimination of the sales tax on investments businesses make on production equipment - a law change Minnesota businesses have wanted for years because it will promote more manufacturing and other investment," Paul Thissen, Speaker of the Minnesota House of Representatives, wrote in a June letter to The Journal.

Warehouse Operators Decry New Law
In the run-up to this new tax becoming law, many in the industry say it will unduly cripple them and may force many firms to move their operations to other states. Opponents of the law claim that it will hurt Minnesota business, since so many firms rely on warehouses to keep supply chains running efficiently. If companies relocate their operations, then stores in the state will be less able to delivery goods in a timely and effective fashion. For example, instead of operating a warehouse in the area to have items sent to stores in the Minneapolis area, a business hoping to target this market might instead set up shop in Wisconsin or Iowa and truck everything into the region.

"All this means that existing public warehouse businesses have very legitimate concerns about how the new tax will affect their competitive position and profitability," economist Edward Lotterman wrote for the Pioneer Press "And the new tax is a step further away from much-needed tax simplification rather than toward it."

Using Warehouse Management Software to Deal With Extra Costs
While Lotterman noted that businesses have legitimate concerns about the new tax, some issues companies have raised are likely overblown. For instance, many organizations will likely find it a much more cost-effective approach to maintain existing facilities rather than build new ones either in Minnesota or a neighboring state. In addition, having to rely more on trucks and less on nearby warehouses would force a business to incur added fuel costs.

Instead, Lotterman noted that companies, especially large ones like Target, will more fervently utilize warehouse management solutions to make facilities already in use more cost effective in light of this new tax. With inventory control software and automated data collection, a company could more actively manage and track the goods entering and leaving a warehouse, helping them to devise new workflows that save the organization money in the short and long term. Armed with this technology, a corporation with a significant warehouse investment in Minnesota would be able to effectively weather the tax issue and any other challenges that can affect business operations.


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