In effort to alleviate the state’s $1.1 billion deficit, Gov. Mark Dayton proposed last week to start taxing clothing items more than $100, which has irked some state retailers.

Dayton’s budget proposal called to lower the overall sales-tax rate by 20 percent to 5.5 percent but also to expand the list of taxable items and services.

Minnesota is one of seven states that have sales taxes but not on clothing, a point often made by retailers from the Mall of America, who say the tax could negatively impact business.

“No sales tax is the key sales pitch component to retail tourism,” said Bruce Nustad, president of the Minnesota Retailers Association, which represents 2,000 businesses throughout the state, including some MOA retailers.

The Mall of America, according to a statement, draws more than 17 million visitors from outside of the state every year, is strongly against the proposed clothing tax.

“Many of these tourists are motivated to come to Minnesota because we do not have tax on clothing,” the mall said in a statement. “This is particularly true for visitors from as close as Chicago and as distant as London.”

Nustad said the MnRA is still trying to digest the budget proposal and look at it within its full context.

He said the association likes the idea of the lowered sales tax overall, but the tax on clothing is the most concerning.

“We’re worried about taking money out of the hands of consumers when we really need them to be spending it,” Nustad said.

Besides impacting the behaviors of consumers, Nustad said changing the systems to accommodate the new tax would be extra work for business owners.

“We haven’t done any analysis yet for what it would take for a retailer to implement this,” he said, “but it’s safe to say it would definitely be an expense for retailers.”

Bob Crabb, director of the University of Minnesota’s Coffman Union bookstore, said he considered it a misguided proposal and that modifying the bookstore’s system to accommodate the $100 tax threshold would be a lot of work.

“I think the problem with clothing, or any tax that applies to price points, is it’s very difficult for retailers to build that kind of tax matrix into their point of sales systems,” he said. “My guess is it will be a significant blowback from the retail community.”

Despite his concerns, Crabb said only a few clothing items, like the store’s expensive jackets, would be affected.

“I think buying habits would be changed a little bit,” he said. “On a $100 jacket, $7 would be added ,so I think there would be a little bit of a fall-off as far as sales, but not significantly.”

Not all bad

Although retailers oppose taxing clothing, they are pleased that clothing bought in-store in the state will be taxed, like purchases made online already are.

The MnRA and the National Retail Federation said the governor’s sales-tax recommendation would work toward leveling the playing field between online and in-store purchases.

“We are 100 percent behind providing sales-tax fairness between online and in-store retailers,” said Stephan Schatz, a spokesman for the NRF. “On the national side, we support that.”

University economics sophomore Roberto Barrientos serves as an officer for the University’s Economics Student Organization and said he approves of broadening the state’s sales tax system.

He said it’s the direction that Minnesota needs to head to fix the state’s deficit.

“By doing this they would achieve the overarching goal of a more progressive economy,” Barrientos said.

Besides clothing items, the new plan outlines taxing over-the-counter drugs, digital products, memberships and admissions, personal services like tattoos or dance lessons and other products.

While Dayton’s proposal has many up in arms, the final budget will likely look different as the House and Senate craft their own.

Nustad doesn’t like the idea of taxing clothing but said the tax system needs changes.

“As Minnesotans, we would be foolish not to understand the purpose behind comprehensive tax reform,” he said. “Now we just need to take a look and see if this is the best that tax reform will look, and I’m not sure if it is.”

If approved, the tax changes would go into effect Jan. 1, 2014.