Individual Income Tax
Individual income tax
is a tax imposed by the state upon (1) the income of Minnesota residents and (2) the income, derived from Minnesota sources, of
nonresident individuals. The tax base is federal taxable income with minor modifications, including the addition of interest earned
on bonds issued by non-Minnesota state and local governments, and subtractions for military pay, charitable contributions of nonitemizers,
and certain dedependent education expenses. A portion of state income tax collections was collected from returns filed by nonresident
taxpayers and another portion was collected from Minnesota resident returns for which the Department of Revenue was unable to identify
the taxpayer’s county of residence. Amounts from Minnesota resident returns is apportioned to counties based on each county’s share
of tax, but the portion paid by nonresidents is not apportioned to counties.
Sales tax is imposed by the state on the gross receipts of all persons who sell, lease, or rent tangible personal property at retail
or provide taxable services. The use tax complements the sales tax and is imposed at the same rate on the storage, use, or consumption
in Minnesota of taxable, tangible personal property purchased from any retailer, unless the Minnesota sales tax was already paid on
these items. Since July 1, 2009, the rate has been 6.875 percent. The tax also applies to the sale or use of specified services (such as
lodging, cleaning, security, etc.) and specified digital products (such as books, audio, and video downloads).
Major exemptions include: unprepared food, clothing, prescribed and nonprescribed drugs and medications, gasoline and special fuels
taxed under the motor fuels excise tax, publications issued at intervals of three months or less (except over-the-counter magazines),
motor vehicles subject to the 6.5 percent sales tax on motor vehicles, materials used or consumed in agricultural or industrial
production, textbooks, residential heating fuels and water services, and industrial capital equipment.
The report and data set display sales tax totals net of capital equipment refunds (prior to the state enacting an up-front sales tax
exemption on capital equipment purchases). The total amount of capital equipment refunds is allocated to counties based on the ratio of
each county’s mining and manufacturing payroll to the total statewide mining and manufacturing payroll.
Of the total amount of net sales taxes collected by the state, a portion was collected from returns filed by out-of-state vendors.
In recent years, the percent of sales tax collections from returns filed by out-of-state vendors has ranged from 15.3% to 17.9%. The
amount collected from returns filed by out-of-state sellers is not allocated to Minnesota in the report and data set, because the
taxpayer’s residence and/or place of business is unknown.
Motor Vehicle Sales Tax
The motor vehicle sales tax
is imposed on new and used motor vehicles at the time of sale. It is imposed in lieu of the general state sales tax on the sale price
of motor vehicles, minus any trade-in allowance. (A flat tax of $10 is imposed upon most motor vehicles that are ten or more years old
in lieu of the motor vehicle sales tax; the flat tax in lieu is $150 for certain collector vehicles and fire trucks.) The general sales
tax is imposed on the lease of a motor vehicle. Beginning with the update for 2014, the motor vehicle sales tax presented in this report
includes the general sales tax collected on motor vehicle leases. (The sales tax on motor vehicle leases is only available on a fiscal
year basis. This report allocates collections in fiscal years using 50 percent of the revenue in each of the corresponding calendar
The rate of the motor vehicle sales tax is 6.5 percent, which is the rate of the general state sales tax prior to the 2008 passage
of the constitutional amendment that increased the general sales tax rate to 6.875 percent (with the increase dedicated to outdoor
heritage, clean water, parks and trails, and arts and cultural heritage). The increase did not apply to the motor vehicle sales tax.
The rate of the general sales tax applied to motor vehicle leases is 6.875 percent.
The Department of Public Safety collects the motor vehicle sales tax. Due to the method of collection, the amount of actual tax
liability from each county is not available. In the report and dataset, the state total is allocated to counties based on two equally
- the number of passenger vehicles and pickup trucks registered in each county, as reported by the Department of Public Safety
- motor vehicle registration tax by county, as estimated by the Department of Public Safety
Vehicle counts serve as a proxy for the residence of vehicle owners, who pay the sales tax. Motor vehicle registration tax estimates
serve as a proxy for the value of vehicles purchased.
Motor Vehicle Registration Tax
The motor vehicle registration tax is imposed annually on each motor vehicle registered in Minnesota. The tax on passenger cars,
pickup trucks, and vans is equal to a $10 flat tax, plus an additional tax based on the vehicle's original value. The tax starts at
1.25 percent of the vehicle's original value and decreases as the vehicle ages to a minimum $25 flat tax.
The tax on trucks and buses is based upon the type, weight, and age of the vehicle. A minimum tax applies to each type of vehicle.
There is also a flat tax on motorcycles and mopeds. The tax is paid when the vehicle is first registered in Minnesota to use the
public streets and then annually thereafter when it is re-registered.
The tax is collected by the Department of Public Safety. The amount of actual tax liability from each county is not available.
In the data set, the statewide total was allocated to counties based on Department of Public Safety estimates of the amount actually
remitted from each county.
Motor Vehicle Fuels Tax (Gas Tax)
The motor fuels tax is imposed on gasoline, diesel fuel, and other motor fuels used by vehicles on public highways. Aviation fuel
purchased, stored, or withdrawn from storage in Minnesota is also subject to the tax. The rate on highway motor fuels is 28.5 cents per
gallon. Alternative fuels, such as liquefied natural gas and high-alcohol gasoline, are taxed at rates proportional to relative energy
Corporate Franchise (Income) Tax
(income) tax is imposed on the net income of corporations. The rate of the tax is 9.8 percent. The tax base is federal taxable
income with a variety of Minnesota adjustments. Corporations that do business both inside and outside of Minnesota apportion their
income based on the percentage of their sales that are made to purchasers in Minnesota. Prior to 2007, the formula weighted sales 75 percent
and property and payroll 12.5 percent each. Beginning in 2007, the formula gradually phases in 100 percent sales apportionment, reaching
that percentage in 2014.
An alternative minimum tax (AMT) applies to federal alternative minimum taxable income, if it would result in a higher tax than the
regular corporate franchise tax. This tax rate is 5.8 percent. A minimum fee is imposed on corporations (including S corporations) and
partnerships in addition to the regular tax or the AMT.
The corporate income tax data presented in the report and data set was tabulated from all Minnesota corporate income tax returns filed
during the calendar year. The corporate income tax data was obtained from the Department of Revenue. The location of each corporation’s
home office is not available. Instead, each county’s total sales, reported in the U.S. Census Bureau’s Survey of Business Owners, are
used as an indicator of the source or location of the corporate tax. The state total of corporate tax was allocated using the Census
Bureau’s survey data.
State General Levy
A state general property tax levy was instituted as part of the overall property tax reform adopted during the 2001 legislative session.
Ninety-five percent of the state general tax is levied on commercial/industrial property (including public utility), and the remaining
5 percent is levied on seasonal recreational property. That portion of public utility property consisting of attached machinery used in
the generation of electrical energy is exempt from the state general levy, as well as the property at the Minneapolis-St. Paul International
Airport and the St. Paul intermediate airport.
For its first year in taxes payable in 2002, the state general levy was $592 million. Each subsequent year's levy is increased from
the previous year's levy by using the increase in the implicit price deflator for government consumption expenditures and gross investments
published by the U.S. Bureau of Economic Analysis (an index of inflation). (The historical graphs here adjust for inflation using the
implicit price deflator for state and local government expenditures, as published by the U.S. Bureau of Economic Analysis, a slightly
different measure than the general government expenditure index used to adjust the state general levy amount. Use of a different measure
explains why the inflation-adjusted line in the graph below is not a flat line.)