New year brings some new taxes—and a few tax breaks

01/02/2007

Vehicle owners in three suburban counties will pay a $5 wheelage taxto help roads and bridges. The ballpark tax also starts today.


By Conrad Defiebre, Star Tribune
Last update: December 31, 2006 – 9:40 PM


If you keep a car or truck in Anoka, Dakota or Washington counties, get ready for a new $5-per-vehicle wheelage tax for roads and bridges in 2007.

If you buy anything subject to sales tax in Hennepin County except a motor vehicle, you'll help pay for a new Twins ballpark.

But if you're a middle-class Minnesotan in harm's way of the alternative minimum tax on income, you may be in line for a sizable tax break.

If you were in military combat or hazardous duty since Sept. 11, 2001, you may be eligible for a state tax credit of $59 for each month served.

And if you run a Minnesota business, you might see a reduced levy on corporate income.

The tax man giveth and taketh away.

On the plus side for taxpayers, an increased exemption for tax year 2007 will save an estimated 44,000 Minnesotans an average of $540 in alternative minimum taxes. Those levies were designed to keep the rich from escaping taxes, but they have trickled down lately to hit folks of more modest means.

Military service tax credits will be issued beginning in January. For more information, go online to http://www.taxes.state.mn.us and follow the links for "Members of the Armed Forces."

Minnesota corporations, meanwhile, stand to save $3 million on their taxes next year thanks to a change in how their profits in the state are calculated. Non-Minnesota corporations that do business here will pay about $450,000 more.

It's the start of an eight-year phase-in of corporate taxation based solely on sales in Minnesota -- property and payrolls in the state are also factored in now -- that should eventually save homegrown firms $40 million a year off the 9.8 percent corporate franchise tax and hit non-Minnesota outfits for about $8 million more.

"It will encourage Minnesota companies to grow here because they'll pay no extra tax for putting more property and payroll in the state," said Keith Getschel of the state Department of Revenue.

For broad impact, however, the suburban county wheelage taxes and Hennepin County's 0.15 percentage point increase in the 6.5 percent state sales tax will have a negative effect on many more Minnesotans than those getting reductions. The four counties are home to more than 2 million people.

That total is 40 percent of the state's population, and the new taxes, which take effect today, are expected to raise about $32.5 million in the first year alone.

The Hennepin County tax increase -- 15 cents on a $100 purchase -- over 30 years will finance $392 million of the $522 million open-air Twins stadium planned in downtown Minneapolis. About $2 million a year from the tax also will go to expanded library hours and youth activities.

Wheelage taxes are expected to generate $4 million a year in the three affected counties, based on estimates that 800,000 vehicles are ordinarily kept there. The money will be collected by the state along with annual registration tab fees. The counties are sharing startup administrative costs of $200,000, plus an estimated $100,000 a year in overhead.

Registration renewal notices including the extra $5 will go to residents of the three counties, but those who usually keep their vehicles elsewhere -- at a lake cabin, for example -- may deduct it from the amount due.

The wheelage taxes were approved by the county boards this year under a 1971 state law that authorized the seven metropolitan counties to levy up to $5 per vehicle. County officials say the new revenue will reduce property tax collections by an equal amount.

"We have greater and greater transportation needs," said Dakota County spokeswoman Jane Vanderpoel. "It's only $5 a year, and we see it as a user tax. We're sure that every one of our citizens who can afford to have a car can afford that."

Coming to your county?

The $5 tax, levied equally on the smallest subcompact and the largest truck (motorcycles are exempt) may be only a hint of things to come. Other county boards are also interested and will ask the 2007 Legislature to extend the wheelage tax option statewide and increase the maximum levy to $20 per vehicle. A similar provision was in the 2005 transportation funding bill, which Gov. Tim Pawlenty vetoed.

"The three counties are tired of waiting for the state to pass a transportation funding package," said Keith Carlson, executive director of the Metropolitan Inter-County Association. "So they're going on their own without further burdening property taxpayers."

Dakota County residents will reap immediate benefits from the new tax, said Mark Krebsbach, county transportation director. County Rd. 42 will be widened from four lanes to six from Burnsville Center to the Scott County line next year, a $21 million project shared by the county, the city of Burnsville and the federal government, he said.

In 2008, a new $26.6 million interchange will link Interstate Hwy. 35 and County Rd. 70 in Lakeville. Projects like that will slow the growth of traffic congestion in the once-tranquil suburbs south of the Minnesota River, Krebsbach said.

Dakota County property taxpayers also will pay $8.8 million next year for transportation infrastructure, up from $8.6 million in 2006, while about $8 million of the $25 million in gasoline taxes collected in the county will be returned there in state aid. But the county still faces a $600 million transportation funding shortfall through 2030, officials say.

"That's an awful lot to expect from our property taxpayers," Vanderpoel said. "We've got to find other solutions."