Minnesota’s Proposed “Snowbird Tax”

Minnesota, like Maine, has its fair share of snowbirds who head south when the weather turns cold. Also, like Maine, it is no surprise that many of the snowbirds’ most favorite southern locales are in states with no income tax (Florida and Texas).

While Maine’s policymakers can’t do anything about the weather, they could–and should–lower the individual income tax to make Maine more competitive (against Florida as well as neighboring New Hampshire for reasons I laid out in a previous blog post).

On the other hand, Minnesota’s Governor, Mark Dayton, has recently proposed doing the exact opposite which is to tax snowbirds even more.  The Wall Street Journal reports on this snowbird tax:

Details are sketchy, but the idea is to tax these nonresidents on their income from stocks, bonds, capital gains and dividends if they spend at least 60 days in Minnesota a year. Income earned in the state is already taxed regardless of residence status, but many retirees or vacationers own a home in the state and live there only for the summer.

The new tax would hit income not earned in Minnesota by those who don’t currently spend the requisite six months and a day in the state to qualify as a taxable resident. So, for example, if you returned to the land of 10,000 taxes only for July and August, you’d suddenly have to pay the taxman in St. Paul on dividend checks sent to your main residence in St. Pete.

The state Revenue Department won’t say how many snowbirders the new tax would hit, but it predicts the tax would raise $30 million over two years. That’s barely an asterisk in Mr. Dayton’s new two-year budget of $37.9 billion, especially since it may drive more residents to leave the state permanently.

I don’t think it is a good idea to hike taxes on people who already own a home in another state. Instead of staying in Minnesota for 5 months and 29 days, they will now stay only 59 days, at best. In the worst case, they will give up on Minnesota altogether and sell their homes–that should do wonders for the real estate market in Minnesota.

At the end of day, the $30 million revenue estimate is pie-in-the-sky. If such a tax were really enacted I’m sure it would succeed in driving snowbirds to extinction, but only in Minnesota.

Minnesota would lose out on all of the taxes being paid by snowbirds when they visit including the sales tax, various excise taxes (gas, meals, cigarettes, alcohol, etc.) and business taxes.  Overall, the full dynamic tax impact would clearly be a negative for Minnesota.

Over the years, Mainers have been subjected to other bad tax ideas from other states–such as the failed tax reform legislation a few years ago. Hopefully, the snowbird tax is one bad tax idea that will stay away.