Twin Cities area business owners who’ve checked their mailboxes over the last few weeks are likely to have received a letter from the Minnesota Department of Revenue informing them to prepare for a new sales tax hike dedicated to public housing and transportation that’s due to take effect this fall.
Actual costs to metro consumers will increase by 1%, though the tax rate itself is increasing by 14.5% (from 6.875% — not including city or county sales taxes — to 7.875%), resulting in hundreds of millions of dollars in new revenue for the state.
“On a sale of $100, the sales tax will go from $6.88 to $7.88. So, a one percentage point increase in the sales tax will yield a 14.5% hike in the amount of tax actually paid but only a 1% increase in the total price,” explained Center of the American Experiment economist John Phelan.
That means consumers who do business in the seven-county metro will soon notice an increase of one penny per dollar spent in the sales taxes they pay for taxable goods and services. Those counties impacted by the new sales tax increase include: Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington.
The notice letters, which the department began mailing out the third week of July, signify that the new tax applies to all retailers who have a taxable presence (nexus) “in any of the seven-county metro cities and townships,” said Ryan Brown, a Department of Revenue spokesperson.
Businesses are expected to begin incorporating the new sales tax in their already existing state sales tax base on goods and services on Oct. 1, Brown said. The department has also posted the notices on its website. Whether consumers will notice the bump in sales taxes depends on how closely they inspect their receipts and how large their purchases are.
For example, on a $50,000 purchase, consumers will see their taxes on the purchase increase by $500.
What those taxes will be dedicated to and where they will be used will be split into a few different directions.
Two separate omnibus bills passed in the state legislature in May included a 0.25% sales tax dedicated to public and affordable housing resources for cities and counties. And a new 0.75% sales tax will go to transportation projects across the metro, with the bulk going to the Metropolitan Council.
The DFL-controlled House and Senate pushed through the 0.75% sales tax increase in their omnibus transportation bill, which is expected to raise $766 million in new revenue for Metro Transit and metro area counties over the first two years. About 87% of those newly collected taxes will go to Metro Transit, and the remaining 17% will be distributed to counties “based on population and money needs,” Krista Boyd, fiscal analyst for the Minnesota Senate, told legislators in a May 20 conference committee meeting on the legislation.
Minnesota Chamber lobbied to bring transportation sales tax hike to the voters
Business advocacy organizations across the Twin Cities made their opinion on the transportation sales tax known loudly during the legislative session.
The Minnesota Chamber of Commerce advocated for legislators to add an amendment to the sales tax provision in HF2887 that would bring the 0.75% sales tax dedicated to transportation to the voters in the form of a ballot referendum. That amendment was offered on the House floor by Rep. John Koznick, R-Lakeville, and in the Senate by Sen. Julia Coleman, R-Waconia. The vote failed in both the House and the Senate along mostly party lines, with Rep. Dan Wolgamott, DFL-St. Cloud, being the only DFL legislator who supported the measure. The Chamber represents more than 6,300 businesses that employ more than a half million people across Minnesota.
Metropolitan Council Chair Charlie Zelle thanked the legislators during the session for providing a “recurring, sustainable” financial boost to the Metro Transit system, which has seen its fair share of operating losses and safety issues over the last few years.
Housing sales tax will be applied to cities and counties for affordable housing
Republicans and Democrats also sparred over the 0.25% sales tax increase that will be dedicated to public and affordable housing in the metro area as part of a $1 billion housing bill that Gov. Tim Walz signed in May.
The 0.25% sales tax increase that will begin being collected in the seven-county metro starting Oct. 1 is expected to generate about $190 million annually for housing projects, said bill sponsor Rep. Mike Howard, D-Richfield.
“This sales tax will go directly to (metro) cities and counties to address the unique affordable housing challenges in their community,” Howard said before a floor vote on the legislation in May. “It’s why more than two dozen local elected officials from across the metro have signed onto a letter supporting it.”
But Republicans who voted against the omnibus housing bill did so because they said the legislation doesn’t address the major cost drivers that make housing in the Twin Cities the most expensive place to live in the Upper Midwest.
Rep. Anne Neu Brindley, R-North Branch, said the sales tax “is the most regressive tax we can put into place in this state.”
“We are taxing low-income Minnesotans more than we are taxing high-income Minnesotans,” Neu Brindley said during a floor debate over the housing bill. “Because, as it turns out, people who don’t have very much money spend every penny of it. And now they’re going to pay more of it in (sales) taxes instead of on the goods and services they need.”
Democrats also passed a new gas tax increase indexed to inflation, a 50-cent delivery fee, and an increase in the motor vehicle sales tax.
The Minnesota Department of Revenue features a “Sales Tax Rate Calculator” webpage where users can plug in their address and the dollar amount they spend at that address to calculate their sales tax rate and amount.
Hank Long
Hank Long is a journalism and communications professional whose writing career includes coverage of the Minnesota legislature, city and county governments and the commercial real estate industry. Hank received his undergraduate degree at the University of Minnesota, where he studied journalism, and his law degree at the University of St. Thomas. The Minnesota native lives in the Twin Cities with his wife and four children. His dream is to be around when the Vikings win the Super Bowl.
