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Twin Cities metro shoppers will see 1% sales tax increase Sunday

Metro sales tax hike goes into effect Sunday
Metro sales tax hike goes into effect Sunday 01:58

MINNEAPOLIS — Shoppers in the Twin Cities metro area will pay more starting Sunday when a new sales tax increase approved by the state legislature this year kicks in.

Democrats in charge at the capitol approved two separate rate hikes to support affordable housing and transportation, totaling 1%. The first is .025% and the latter is 0.75%, and together the increases are expected to bring in hundreds of millions in new revenue.

Minnesotans who live in the seven-county metro area—Anoka, Carver, Dakota, Hennepin, Scott, Ramsey and Washington counties—will be impacted. The increase means an extra $1 on every $100 spent, but groceries, clothing and prescription drugs are still exempt.

The housing portion will fund development of affordable homes and create a new state rental assistance program to help about 3,000 low-income residents, said Ben Helvick Anderson, vice president of policy and organizing at Beacon Interfaith Housing Collaborative. The change is part of the largest state investment in affordable housing ever in Minnesota.

"Housing has been historically underfunded in the state of Minnesota so it's really key to have a dedicated funding source like this metro sales tax that will really help address our affordable housing crisis," he said in an interview Friday.

The bump in sales taxes dedicated to transportation will support transit and other maintenance. Funds will be allocated to counties and the Met Council for these purposes, though money is not allowed to be used for the Southwest Light Rail project, which has faced intense scrutiny for cost overruns and delays.

Advocates for the boost said during the legislative session that a sustainable funding stream for transportation is long overdue.

"We haven't really done anything significant in 15 years and I think our streets show that wear and tear," Rep. Frank Hornstein, DFL-Minneapolis, told WCCO in April ahead of a transportation package vote.

The sales tax hike would apply to purchases at brick-and-mortar stores within the region and anything Minnesotans who live in the area buy online, even if it's from an out-of-state retailer or from a store in the Northern part of the state, for example.

Bruce Nustad, president of the Minnesota Retailers Association worries about competition—if Minnesotans would drive out of the metro-area or even across the border for big purchases.

In Minneapolis, the new sales tax will be over 9%, accounting for all local and state surcharges. In St. Paul, it's just under that with a proposal before voters this fall that would increase it another 1% to nearly 10%.

"In some ways, the 1% tax [increase] is coming kind of a bad time relative to other inflationary pressures," Nustad said. "The consumers definitely I think will notice as they've noticed all cost increases recently."

Separately, there will be a new 50-cent fee tacked onto most retail deliveries $100 or more, which is a scaled back plan from the original version. It does not apply to restaurant deliveries.  Republicans condemned this provision—and other tax increases approved this year—at a time when the state had a $17 billion surplus as the beginning of session.

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