Record tax increase kicks in Monday; cigarettes skyrocket in price

By Don Davis / Capitol Bureau ST. PAUL -- Minnesota's two-year budget begins Monday, with more than $2 billion in new taxes to help fund programs ranging from education to local government aid to nursing homes. To provide new funding, as well as ...

By Don Davis / Capitol Bureau

ST. PAUL -- Minnesota’s two-year budget begins Monday, with more than $2 billion in new taxes to help fund programs ranging from education to local government aid to nursing homes.

To provide new funding, as well as plugging a $627 million budget deficit, taxes are headed up on couples who earn more than $250,000 in taxable income, cigarette smokers, some online customers and some businesses.

The record-large tax increase, which bumps state spending up to $38 billion, is an issue in the 2014 campaigns that already are beginning, but since Democrats control the Legislature and governor’s office, they had their way on the budget this year.

The biggest revenue raiser comes from upping the income tax rate on the best earners 2 points, to 9.85 percent. That applies to couples with $250,000 annual incomes and individuals making at least $150,000.


The new fourth income tax tier provides more than half of the new revenue.

At the other end of the income spectrum, low earners are expected to pay the brunt of a $400 million tobacco tax increase. For cigarette smokers, that means paying $2.83 in state taxes per pack, up from $1.23.

Many of the other tax increases will be on businesses, especially eliminating what some call “loopholes” that gave some companies tax benefits.

Democrats say the new taxes make for a fairer system.

“After a decade of budget deficits, gimmicks and all-cuts budgets that have left working families struggling, we delivered an honest solution to fund Minnesota’s priorities and close the $627 million budget deficit,” Rep. JoAnn Ward, DFL-Woodbury, told constituents in a newsletter after the legislative session ended May 20. “Our budget puts an end to one-time money and accounting shifts to put our state on stable financial footing into the future and to make much-needed investments in education and job creation.”

More money was needed for some state priorities, Rep. Joe Radinovich, DFL-Crosby argued. “Our budget keeps our promises we made and invests in priorities that Minnesotans broadly share and support: education, job creation and middle-class property tax relief.”

However, Republicans say all Minnesotans needlessly will pay higher taxes.

“Rather than creating a more effective government, Democrats created a more wasteful, inefficient government with almost no accountability, fewer standards and less opportunity ...” said Sen. Bill Ingebrigtsen, R-Alexandria. “Hardworking taxpayers will lose more of their paychecks in order to fund more inefficient government programs.”


Revenue Commissioner Myron Frans said taxes will be collected on audio and video downloads from the Internet, things such as movies, music, books, greeting cards and games. Online retailers that have a Minnesota connection also must collect taxes, but some businesses such as Amazon are working to sever Minnesota ties so they are not forced to charge sales tax.

A new state gift tax will be collected. For instance, if a parent gives a child more than $14,000 in a year, that will be taxed, Frans said.

Also this year, counties statewide may begin to levy a “wheelage tax,” a charge for each vehicle. The tax had only been allowed in the Twin Cities area.

Tax savings also are set.

For instance, with cities and counties becoming exempt from paying sales tax on purchases, supporters say enough money will be saved to freeze property tax levies. However, the Legislature did not enact a property tax freeze.

Also designed to help property tax rates remain in check is a relief package that allows more Minnesotans to be eligible for tax refunds.

One of the biggest tax-relief provisions, Democrats contend, is an increase to aid the state pays to schools, counties, townships and cities. That is designed to reduce the need to increase property taxes.

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