Sales taxes in the seven-county metro jumped a penny on the dollar on Oct. 1, after the Legislature voted in May to create more permanent funding for transit and housing.
The 1% increase means all seven metro counties now have sales tax rates that top 8%. The statewide base rate is 6.875%, and many communities have additional local sales taxes — Minneapolis, Maple Grove, Excelsior and Edina now are all a little over 9%.
The sales tax hike is divided between 0.75% for transportation and 0.25% for housing. It is expected to generate about $750 million a year.
The DFL-controlled Legislature approved the change, saying dedicated revenue for transit and housing was overdue. Republicans criticized the tax hike as unnecessary, noting it was approved when the state had a $17.5 billion budget surplus.
Why increase sales taxes?
State lawmakers have long wanted to raise more money to fund transportation and transit, but past attempts to permanently increase gasoline and other taxes failed in a politically divided Legislature.
This year, lawmakers settled on a 0.75% increase in the seven-county metro sales tax as part of a broader overhaul of transportation and transit funding. Metro counties already had added sales taxes dedicated to transit — in Anoka and Dakota counties, it's a quarter percent, and in the rest of the metro a half percent.
The transit sales tax hike will raise more than $560 million a year, with 83% going to the Metropolitan Council and 17% to metro counties.
The remaining 0.25% sales tax increase is dedicated to housing and will go toward addressing the state's lack of affordable units. State officials estimate the tax change will generate about $190 million next year.
It is a significant boost in dedicated annual funding for housing initiatives. Previous state budgets spent less. This year lawmakers approved a historic $1 billion for housing that includes a lot of one-time spending.
How will the money be spent?
New revenue from the housing portion of the tax funds state, county and municipal affordable housing efforts. Counties will get 50% of the revenue, cities get 25% and the rest goes to the state rental assistance program.
The money will be used for rental assistance, to build or rehabilitate affordable housing, to reduce homeownership disparities and to support nonprofits that work on housing initiatives. State officials estimate it will fund about 1,000 new affordable housing units and 3,000 housing assistance vouchers a year.
The transportation portion of increased sales taxes will be heavily focused on transit. Met Council officials say a big chunk of the money will be used to eliminate existing shortfalls, including the more than $35 million counties were contributing to subsidize transit lines.
The Met Council will use the rest for a bunch of other initiatives: to increase metro transit wages, expand bus service, improve rider safety, maintain and improve stops, buy zero-emission buses and invest in on-demand smaller transit services like ride-share.
Counties can spend their portion on road and bridge maintenance, walking and biking trails and transit.
In addition to the 0.75% sales tax increase for transit that went into effect Oct. 1, the Legislature also approved higher taxes on vehicle sales, increased vehicle registration fees and added a 50-cent delivery fee on orders of over $100 in the metro. The state's gasoline tax will be tied to inflation and the added money from these increases will fund a variety of transportation projects.