Minnesota lawmakers OK raising gas tax, new delivery fee
Under a bill expected to become law, Minnesota’s gas tax would be tied to inflation, a move that could increase the price of fuel by 5 cents per gallon by 2027. The current state tax is 28.5 cents.
ST PAUL — A transportation budget bill that would increase the per-gallon tax on gasoline and introduce a fee on many deliveries is set to become law after gaining final approval from the Minnesota Legislature.
Under an $8.8 billion transportation package approved by the Senate and House on Sunday, May 21, Minnesota’s gas tax would be indexed to the rate of inflation, a move that could increase the price of fuel by 5 cents per gallon by 2027. The current state tax is 28.5 cents. The new 50-cent tax would apply to retail deliveries over $100.
Republicans in the minority oppose the new taxes, but Democratic-Farmer-Labor lawmakers who control the Senate and House say expected future shortfalls in transportation funding demand new sources of ongoing revenue from the state.
Rep. Frank Hornstein and Sen. Scott Dibble, Minneapolis DFLers who chaired the House-Senate conference committee on transportation that approved a deal on the taxes said the bill is a “historic, generational investment.”
"I'm excited to present this bill today; it's a real opportunity, generational in nature, in which we can at long last stop limping along with one-off, one-time funding or borrowing to the hilt, and get on the path to sustained, reliable funding," Dibble said ahead of the Senate vote Sunday night."We won't have the dystopia of potholes everywhere wrecking everyone's cars, we won't have the unending clamor of special legislation looking for special requests ... because projects will be funded, and we won't see transportation services cut."
The transportation bill containing the gas tax passed the House 69-61 and the Senate 34-33 on Sunday. It is expected to raise $155 million in the next two years, and $266 million in the following years, according to a fiscal analysis of the bill. Minnesota hasn't raised its fuel tax since 2008 after the collapse of the Interstate 35W bridge collapse in Minneapolis.
The bill raises the gas tax, but lawmakers are also pushing to end Minnesota’s minimum markup on gasoline. Under current state policy, gas sellers are required to add either 8 cents or 6% to the price of a gallon of gas — whichever is less. A separate bill that eliminates the markup is headed to the governor's desk.
DFL Gov. Tim Walz agrees that the state needs to find ongoing revenue sources for transportation. He’s expected to sign the bill into law. The deadline for lawmakers to finish their business is Monday, May 22.
The retail delivery fee in the bill is lower than the original House DFLers proposed. Language in the original House transportation bill called for a 75-cent fee on most deliveries, such as Amazon shipments and food delivery.
Now the retail delivery fee is 50 cents and applies to shipments over $100. It’ll bring in an estimated $189 million by 2027.
Supporters say the new taxes will generate-much needed revenue to fund road and bridge maintenance. Sen. Majority Leader Kari Dziedzic, DFL-Minneapolis, last week called the tax a "road maintenance fee."
Republicans and other opponents such as the Minnesota Retailers Association question why the state needs to create a new tax when it already has a historic $17.5 billion budget surplus, about one-third of which is ongoing revenue.
“Consumers and businesses don’t need an entirely new, complicated taxing system when we already have several existing mechanisms in place to raise funds for transportation,” retail association president Bruce Nustad said in a statement. “Calling the tax a ‘road improvement fee’ won’t fool Minnesotans.”
An increase to the gas tax and the delivery fee are just some of the tax increases in the transportation bill. There’s also a new Twin Cities metro sales tax of 0.75%, which will apply to the seven-county metro area and go toward transit projects.
The transportation bill also increases motor vehicle registration tax, a move expected to bring in a total of $787 million in the next four years.
The current tax is $10 plus 1.25% of the base value for a passenger vehicle. That’ll go up to 1.54% for vehicles purchased before November 2020, and 1.575% for vehicles purchased after then.
In 2022, the average price of a new vehicle was $48,000, according to auto valuation and research publication Kelley Blue Book. The House version of the legislation would increase the average registration of a new $48,000 vehicle from $610 to $766.
Vehicle registrations in Minnesota drop down each year for 10 years after the purchase until the fee is $35.
Both the Senate and House transportation bills raise the vehicle sales tax from 6.5% to 6.875%. It’s expected to bring in more than $200 million in additional taxes in the next four years.
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This story was updated at 8:52 p.m. May 21 with the final vote. It was originally posted at 2:44 p.m. May 21.