How does Minnesota’s sales tax stack up?

At 6.875 percent, Minnesota has one of the highest sales tax rates of any state in the nation. But it’s also one of the few states that exempts clothing from the tax.

So would you be OK with a lower sales tax rate in exchange for letting the state tax clothing purchases over, say, $200? That’s one of the key questions lawmakers will face this session as they seek to remake the state’s tax structure.

MPR News reporter Mark Zdechlik’s story today details efforts by DFL Sen. Ann Rest to tax clothing. He writes, “When Rest proposed taxing clothing sales a few years ago, officials concluded the broader sales tax would bring in enough money to lower the 6.875 percent tax rate by half a percentage point and pay for the tax credits.”

Even with a half percentage point drop, Minnesota’s sales tax would still be high relative to its neighbors. Mouse over the states to see the sales tax rates. The dark green states, including Minnesota, charge the highest sales tax.

Source: Sales Tax Institute

Among the states that impose a sales tax, eight (Minnesota, Pennsylvania, Rhode Island, Texas, Vermont, New York, New Jersey, Massachusetts) provide some exemption for clothing, according to The Tax Foundation, a nonpartisan research group.

Minnesota’s high end clothing retailers are pushing back at the prospect of a clothing sales tax. The Mall of America, where apparel accounts for more than half of all sales, says the current clothing sales tax exemption is one of the main reasons tourists around the world travel to the mall.

While the clothing fight will take center stage in the coming weeks, the larger problem with the sales tax is that consumers are shifting more of their purchases away from goods and toward services, which largely go untaxed.

income.sales.jpg

Gov. Dayton is expected to offer a comprehensive tax reform plan in the coming weeks, but he’s acknowledged the challenges of making change. In December he told MPR News it will be a tough sell to expand the sales tax to goods and services that are currently exempt.

“Two-thirds of our economy now is services, and yet we tax very few of those,” said Dayton. “Broadening that base sounds good in concept. But it also means you tax things that aren’t being taxed now, and nobody is going to like that.”

In the end, even if changes are made to the sales tax and what’s covered, it won’t alone solve the larger problem of taxing goods sold in Minnesota.

  • James

    This graphic is slightly misleading, because in many states, especially those without a state income tax, the counties and cities add their own to the state tax. So, in places like Tennessee, the sales tax is pushing 10 percent on everything, including groceries. Even in Minneapolis and Saint Paul, the sales tax is not above 7.5 percent (to my knowledge … could be mistaken; nonetheless, no where near the 10 percent of many Southern states and definitely not a blanket tax like them).

  • Jonathan

    Eliminate the sales tax entirely and increase the income tax to make up for it. It’s a regressive tax that unfairly burdens the poor and low income. It also puts our local businesses at a disadvantage as they have to compete with online retailers that charge no tax whatsoever.

  • Mandi

    Actually, we pay 7.775% in Hennepin Co, Minnesota, thanks to state, city, county, AND a transit tax.

  • Amy Seibert

    The map is incorrect. The State of Washington’s sales tax is 9.5%.

  • Nicholas

    To Jonathan,

    Are you insane? Why would you wanna increase the income tax, the income tax is the most communistic tax we have in this country. You are taking away money from individuals and giving them no choice in the matter what so ever. At least with a sales tax people can choose whether or not they want to buy something and deal with the sales tax that goes a long with it. If you do anything you eliminate the income tax altogether or at least lessen it and then increase the sales tax slightly (even though I would not raise it at all).

    The only way to help out this states economy would be to cut spending. Increasing taxes only goes so far especially when your government spends uncontrollably.

  • Alex

    I would be in favor of abolishing the state sales taxes altogether and replacing the revenue with a fair, progressive income tax. By fair, I don’t mean tax brackets, but a tax that progressively increases proportionately to income levels.

    Nicholas, “first-world” living, or more like “second-world” in most of USA does not come for free. You have to pay for infrastructure and services that the government provides. If you don’t want to pay taxes, move to a third-world state (or South Dakota, which is the nearest approximation) and see how much you like it. Assuming low levels of government corruption, higher taxes and progressive taxation correlate with higher standards of living for most.

  • Jonathan

    Nicholas, I (along with sane most people) have no problem with a progressive tax system. Characterizing it as “communistic” is as insane as calling it “anarchistic” to eliminate it all together. Both are hyperbole and neither is correct.

    As for the ethics of it, I (along with most sane people) would agree taxes are the price you pay to live in a civilized society. There is no choice in the matter. Characterizing the sales tax as “voluntary” and therefore “better” than an income tax is ridiculous.

    As for helping the state economy, state governments are not allowed to run deficits, they have to balance their budgets every year, so I’m not following your statement about uncontrollable spending. If you’re concerned about the size of the overall budget fine, that’s a fair point. However, I (along with most sane Minnesotans) would probably not want to live in a state like South Dakota, which has no income tax.

  • Shannon Thomsen

    In the beautiful lakeside city of Duluth the current sales tax on a lot of services(such as dining out, renting a hotel room, etc) equals close to ten percent thanks to the goods and services tax(or as we call it the “tourist tax” since it is supposed to hit the tourists the hardest.) People coming across the border from WI to clothes shop are one of the few groups not getting screwed by high sales tax. And I would also argue that more native Duluthians choose not to dine out or enjoy those beautiful lakeside hotels with whirlpool suites in the winter. Because we aren’t tourists and don’t like being treated as if we were.