Metro Sales Tax Hike Hit October 1, Costing Minnesota Consumers, Small Business Nearly $3 Billion

October 4, 2023

Trips to the hardware store, catching the game at your favorite local restaurant, and much more just got pricier.

Metro Sales Tax Hike Hit October 1, Costing Minnesota Consumers, Small Business Nearly $3 Billion

On Sunday October 1^st, the Metro Area SalesTax will rise 1%, a measure included in May’s final state budget agreement between state lawmakers and Governor Walz. The 1% Metro Sales Tax hike is one of a slew of tax increases approved by the 2023 Minnesota Legislature and Governor Walz. The sales tax hike alone will cost small businesses, consumers, and taxpayers $3 billion over the next four years. “Decision have consequences. Lawmakers’ tax increase takes more from Minnesotans pocketbooks, reducing the amount they can spend going out to eat, buying tools at their local hardware store, or any other number of regular purchases,” said John Reynolds, NFIB Minnesota State Director. “While the rate of inflation has slowed down, prices have not. Life in Minnesota is much more expensive than before the pandemic and this tax hike only makes it harder to keep up.” According to the Minnesota Department of Revenue Sales Tax Rate Map, the combined state and local general sales tax in all metro counties will exceed 8%, with multiple cities eclipsing 9%. Pending the outcome of a November referendum, St. Paul’s sales tax could close in on 10% – putting it among the highest major city sales tax rates in the United States. The 1% Metro Area Sales Tax is particularly concerning to small business owners on the edge of the metro or border with Wisconsin, who know their customers can easily save money by driving to a competitor a short distance away. Academic researchers have repeatedly found that consumers respond to sales tax hikes by making more trips to lower-tax areas. The sales tax rate in Hudson, WI is 5.5%. Small Businesses, Inflation & Taxes

The most recent data from NFIB’s Small Business Economic Trends shows that inflation remains a top concern for small business owners.

Higher sales taxes hit small businesses on both ends. Minnesota’s Tax Incidence Study shows that 50% of general sales tax revenue is paid by businesses and higher sales taxes reduce customer purchasing power.

The Metro Area Sales Tax hike was part of a suite of tax and fee increases this year that will cost Minnesotans nearly $10 billion over the next four years, including a higher gas tax, vehicle sales tax, vehicle registration fees, retail delivery fee, and new payroll tax.

“The insatiable and unsustainable appetite for government spending in St. Paul will come back to haunt our state,” added Reynolds. “With an $18 billion budget surplus – by far the largest in state history – we could have had fiscal responsibility, lower taxes, and improved services. Instead, we got a slew of new taxes, higher fees, and a 40% increase in state spending.”

Most of the 1% Metro Area Sales Tax revenue will go to transit projects, such as trains and buses, and various housing programs.