Raising Minnesota’s license tab fees could be a key component of any transportation deal. Here’s how it would work — and who would pay

On Monday, Gov. Mark Dayton offered the option of raising the price Minnesotans pay each year for those little colorful registration tabs that stick on their license plates.

When it comes to the transportation debate in St. Paul, there are plenty of disagreements.

To name a few, Democrats want to raise the state’s per-gallon gas tax to pay for road and bridge improvements; Republican do not. Democrats want to raise sales taxes in the metro area to pay for transit projects; Republicans are opposed to spending money on light rail. Democrats don’t want to dedicate more of the state’s current budget to transportation; Republicans argue it’s one of government’s core responsibilities.

On Monday, however, Gov. Mark Dayton offered up a different option: Raise the price Minnesotans pay each year for those little colorful registration tabs that stick on their license plates.

Both Republicans and Democrats have left the door open to that idea so far, giving some a sliver of hope that there could be a deal on transportation funding yet this year.

Here’s a breakdown of how vehicle tab fees work in Minnesota, how lawmakers’ proposed plans would change that — and the politics behind it all:

How do vehicle tab fees work?
In Minnesota, legislators and the governor set motor vehicle tab costs in state law. Current law sets a base fee $10 to register a vehicle, but then adds on an additional cost of 1.25 percent of the value of the vehicle. That price is usually based off the manufacturer’s suggested retail price, so it doesn’t matter if someone got a better deal on a car or truck than someone else.

On the high end, a brand new $60,000 vehicle is currently subject to $760 in tab fees in its first year, while a new $15,000 vehicle costs $198 in fees. The value of the vehicle goes down about 10 percent each year, the state estimates, and thus so do tab fees. After 11 years, the state simply charges vehicle owners a flat $35 fee. All told, the Federal Highway Administration estimates the average Minnesotan pays $125 in tab fees each year.

So how would that change under Dayton’s plan?
Dayton offered up two plans using license tab fees to lawmakers on Monday. The first proposal, which includes a five-cent gas tax increase, would raise $250 million a year in license tab fees by raising the base tab fee from $10 to $20 and raising the rate from 1.25 percent to 1.65 percent. Under that plan, that $60,000 brand new vehicle would be subject to $1,010 in tab fees the first year, while a $15,000 new car would cost $268 in fees. The law would also raise the minimum amount a person can pay in tab fees a year from $25 to $35.

Gov. Mark Dayton
MinnPost photo by Briana Bierschbach
Gov. Mark Dayton

The second proposal doesn’t include the gas tax increase, so Dayton makes up the difference by getting more money from tab fees, a total of $400 million. Under this plan, there would be a $20 base fee, $35 minimum fee and a 1.63 percent rate increase. But the real way the second proposal raises so much more money over time is slowing down the assumed depreciation rates for the car, keeping registration fees higher for longer.

You can see a breakdown of how the fees would go up under Dayton’s first proposal here and second proposal here. The governor also released a side-by-side of current law and the two plans.

Is the Legislature OK with that?
Not exactly. Senate Democrats included a small license tab fee increase in their last offer to forge a transportation deal, and Republicans offered up a considerably scaled-back version of a tab fee increase in a counter-offer on Tuesday.

Under the House GOP plan, which would raise $100 million per year, a $60,000 brand new vehicle would cost $765 in tab fees, instead of the $760 now. But the car would depreciate at a much slower rate than in current law. For example, a $60,000 car after five years would cost $460 in tab fees now, but it would cost $540 in fees after five years under the House GOP plan. People buying new cars would get hit with the higher fee increases. 

“It could work that maybe if you paid $100 this year and you were scheduled to pay $75 next year, maybe you pay $83 next year, so you won’t pay more than you’re currently paying,” Speaker Kurt Daudt said. “I think the highest anybody could see would be about a 25 percent increase in what they pay in tab fees, most people would see $10 or less.”

When was the last time lawmakers changed the tab fees?
The state’s vehicle tab fees usually come up when there’s any major transportation funding debate in St. Paul. In general, they are more palatable to some politicians than raising the gas tax, but others equate them to a tax increase by another name.

Speaker Kurt Daudt
MinnPost photo by Briana Bierschbach
Speaker Kurt Daudt

Former Republican Gov. Tim Pawlenty proposed an increase in tab fees in lieu of a gas tax in 2003, but it was rejected by legislators. In 2008, lawmakers approved both a gas tax and a tab fee increase as part of a major transportation funding package. Pawlenty originally vetoed the bill, but a DFL-controlled House managed to garner enough Republican votes to override his veto. The 2008 Legislature raised the fees by phasing out the popular $189 and $99 registration caps instituted during Gov. Jesse Ventura’s administration.

Increasing tab fees is generally not popular with the public, but with Republicans pushing hard against the gas tax, Dayton said he didn’t have many other options to find funding. “There’s no free lunch,” he said. “General fund comes from taxpayers, tab fees come from taxpayers, gas tax comes from taxpayers. There’s no one else who is going to pay for improving our transportation system except for all of us.”

When asked if he thought tab fees were the same as a tax increase, Daudt said: “We believe it’s a user fee for roads.”  

“But it does put new revenue in the plan, and I think that’s what the governor wanted,” Daudt added. “It wasn’t easy for our caucus to swallow new revenue, but we believe in the spirit of compromise to make sure that we get roads and bridges funded.” 

How do Minnesota’s tab fees compare to other states?
Every state requires motor vehicles to be registered with state’s transportation agency, but the method of calculating the amount varies greatly among the states. Maryland, for instance, calculates registration fees by the weight of the vehicle, while other states charge different fees based on if the vehicle is a car or a truck. Other states just have a flat tab fee each year, with Mississippi’s tab price as low as $14 per year and Illinois’s as high as $100 a year. Montana has a similar system to Minnesota, requiring a $217 tab fee for cars under four years old. Those fees steadily go down to $28 a year for cars that are more than 11 years old. The National Conference of State Legislatures has a full breakdown of how other states handle tab fees.

What’s next?
Leaders of all four caucuses hoped to reconvene for negotiations and settle on a deal by Tuesday evening, Daudt said. 

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Comments (17)

  1. Submitted by Jim Million on 05/17/2016 - 10:02 am.

    Weight it toward Trucks, Please

    Yes, I know the arguments from past plans; however, perhaps we can calmly walk through the lobby this time.

  2. Submitted by Ron Gotzman on 05/17/2016 - 10:33 am.

    Please…

    I thought the DFL were against raising taxes on the poor and middle class?

  3. Submitted by Ray Schoch on 05/17/2016 - 11:02 am.

    Trucks, and VMT

    I’d agree with Jim Million. Less hysteria to begin with, and then, since the main point of transportation policy is to maintain the state’s system of roads and bridges, fund-raising strategies ought to be weighted toward the vehicles that induce the most wear-and-tear on the the state’s road and bridge network.

    Those vehicles are NOT 3,000 to 4,000-pound automobiles. The dozens of 80,000-pound 18-wheelers that go through my neighborhood every day do far more damage to local roads and highways than do mine and my neighbors’ ordinary cars.

    And, in order to somewhat calm the apoplexy induced by higher fees for trucks and other commercial vehicles, as well as similar noises coming from environmentalists, instead of a fuel tax, or maybe more accurately a fuel tax INCREASE, the state could institute a Vehicle Miles Traveled program that would eventually include all types of vehicles driven by internal-combustion engines (or it could be based on weight, plus vehicle miles traveled).

    Republicans generally like the idea of “user fees” in place of taxes, and a VMT program is absolutely based on actual use by drivers. Does a VMT program impinge on individual privacy to some degree? Yes. The powers-that-be in St. Paul seem to agree on at least one point: there ain’t no free lunch. If drivers want paved roads, and I, at least, do, then those roads and bridges have to be paid for. As vehicle gas mileage continues to improve, and hybrid gas/electric vehicles become more commonplace and less a curiosity, gas taxes seem a dead end in terms of increasing transportation funding. Monitoring actual driving mileage of both commercial and private vehicles, and charging the owners of those vehicles for that mileage, seems to me a straightforward way to raise transportation funds, and in the process, provide the state with some useful data about how much driving actually is taking place, and what kind of use the state’s roads are actually getting.

  4. Submitted by B Carlson on 05/17/2016 - 11:47 am.

    Wow!

    Viewing the link u offer in the next to last paragraph, it looks as tho MN may already have, by far, the highest vehicle registration taxes of all states!

    In fact, a large number of states seem to have yearly vehicle fees that are in the $10 to $25 range.

    Hard to believe that MN needs even more than we are all already paying.

    • Submitted by Jim Million on 05/17/2016 - 12:09 pm.

      “The Land of 10,000 Taxes”

      Remember that old one?

    • Submitted by Frank Phelan on 05/17/2016 - 12:24 pm.

      It May

      Be hard to believe. Until you drive on the roads.

    • Submitted by John Kessler on 05/17/2016 - 01:03 pm.

      Remember the Property Tax

      In New England at least, you also have to include the Personal Property Tax which is levied on your car. Add $300+ to the annual tab cost of $40 in CT. It varies by town and is levied on 70% of the value of your car.

    • Submitted by Julie Barton on 05/17/2016 - 01:58 pm.

      not a surprise at all….

      Just looking at another state I am familiar with (Missouri) which has very low tag costs, no gasoline tax (and I think gas prices may be subsidized somewhat – don’t quote me on that), I thank God for our higher tabs. Their road upkeep is so much worse than ours. Even the freeways look like they haven’t been repaved/repaired in decades – and this is with I-70 which gets more daily traffic than I-94.

      Not that the road repair is just about tag costs: that would be too simplistic.

  5. Submitted by Brenda Doup on 05/17/2016 - 11:57 am.

    Minnesota’s license tab fees

    Maybe our politicians should be paid at the middle class level before they can make decisions on raising fees (taxes) of any kind. If you can afford a $60,000 vehicle, you can afford the estimated $760 license tab fees.

    It may seem appropriate that “oil companies” pay more taxes to support infrastructure for transportation. Maybe the Minnesota State Surplus needs to be invested and used for transportation. The problem with our politicians is they don’t have a clue on the impact of new fees and raising taxes has on society, especially lower and middle income.

    Maybe Minnesotan’s need to make sure they vote leaders in that are true leaders with integrity.

    • Submitted by Bill Willy on 05/18/2016 - 03:46 pm.

      The flip-side

      While I don’t disagree with what you’re saying about politicians/legislators and don’t really disagree when you say . . .

      “The problem with our politicians is they don’t have a clue on the impact of new fees and raising taxes has on society, especially lower and middle income.”

      . . . it ought to be pointed out that the same thing can be said for the other side of that coin:

      “The problem with our politicians is they don’t have a clue of the impact cutting fees and cutting taxes has on society, especially lower and middle income.”

      Whenever I think about that I think of the billions of dollars in permanent state tax cuts that were implemented at the end of the “Clinton era” and the strict adherence to the “Not a penny more in taxes!” policies that dominated MN politics and legislation during the “Pawlenty era.”

      And whenever I think about that I find myself thinking and wondering about how the eight years of lockstep adherence to that “core conservative prinicple” caused yearly budget deficits (that culminated in the $6.2 billion deficit of 2010) that “forced” budget cuts and the impact those “necessary” cuts had on the K-12 educations of some (substantial) number of Minnesota kids (of all “socio-economic backgrounds,” but lower and middle class kids in particular).

      Schools didn’t suffer “budget cuts” over those years, but they did suffer “school shifts” which meant those kids found themselves in classes where there was one teacher for every 40 of them instead of one teacher for every 25 or 30. And most schools couldn’t afford to “keep up with technology,” or even purchase enough of the most current text books, etc., because every Minnesotan needed to “tighten their belt” because . . . Well, because enough politicians and legislators believed it was more important that voters not have to pay even slightly higher taxes (unless they “chose to” pay them via their “local” property taxes).

      Not to rehash that argument, and not that it can be “proven statisically” (yet), but it wouldn’t surprise me to find out at least some of those kids will pay for those “tax savings” with lower paying jobs and incomes over their lifetimes because their K-12 education was of lower quality than it could have been which is just one example of the kind of thing that can happen when “tax rate reduction or suppression” is the primary (and often times only) priority and focus of politicians and legislators who aren’t quite capable of understanding the ramifications of their “fiscal management” theories and real world actions.

  6. Submitted by John Clouse on 05/17/2016 - 12:40 pm.

    Fees vs taxes

    Daudt will only be satisfied with cutting the general fund so that it cannot be spent on “welfare.” This is the heart of his transportation plan.

  7. Submitted by Bill Willy on 05/17/2016 - 12:50 pm.

    What a difference a day makes

    “On Monday, Republican Speaker Kurt Daudt equated the [Governor’s] tab fees to a new kind of tax increase on Minnesotans.”

    On Tuesday, when he was asked by the press after announcing the House Republican transportation “compromise” which included the exact same tab fees (with different rates), Republican Speaker Kurt Daudt said it wasn’t a tax increase but a “user fee.”

    Funny how that goes, innit?

    Obviously, all Republicans need to do is get a grip, close their eyes, agree to a reasonable increase in the “fuel user fee” (that actually covers the costs) and get something productive done before the clock runs out and turns the entire last two years into one big legislative waste. (How much does two wasted years cost, do you suppose?)

  8. Submitted by John N. Finn on 05/17/2016 - 01:06 pm.

    Motorcycle tabs

    Not mentioned but I would assume they would still be $10 no matter how new or expensive (not unusual for one to cost $30K). The Harley biker lobby is pretty intimidating you know.

    • Submitted by Ray Schoch on 05/17/2016 - 02:17 pm.

      Harley lobby

      I’ve never seen it in action, but can only imagine that you’re quite correct about the Harley lobby. Every other internal combustion engine in the state (and in most states) has to have a muffler, but not my neighbor’s Harley. BMW and Honda both make motorcycles – with quite effective mufflers – that will run rings around most Harleys, but legislatures cower before the Harley lobby, just as they do before the NRA.

      My other pet peeve with motorcycles is more general. When you witness an automobile driver or a motocyclist doing something especially stupid and/or risky – so much so that the police ought to know about it – one of the first questions they ask is “What was the plate number?” I have decent vision, though not eagle-like, and can usually read an automobile plate pretty well. The same can’t be said for 4 x 6-inch motorcycle plates, which are often hard to make out at 10 feet when the motorcycle is motionless and it’s directly ahead, much less at 50 feet when it’s moving at 30 mph or (often) much more, and I’m seeing it at an angle.

  9. Submitted by Shaina Brassard on 05/17/2016 - 04:10 pm.

    Gas tax a more straightforward user fee

    A gas tax would be a more direct and fair way to address behavior that causes costly results like wear and tear on roads and bridges, traffic control and emergency response staff, accident-related injury and death, and climate change. You’d pay based on HOW MUCH you use transportation that requires gasoline, and HOW MUCH gasoline that vehicle uses, not just to own a car, period. The 4000 miles a year I drive my old Prius is much less detrimental to our infrastructure and the environment/all life than the 30,000 miles a suburban commuter drives their over-sized SUV; we should pay accordingly.

    I am supportive of tab fee increases- they are user entry fees. But the gas tax would make people pay their fair share based on their proportionate use….which is also likely why the Republicans and outstate Dems will oppose it.

  10. Submitted by joe smith on 05/18/2016 - 10:21 am.

    I have worked or lived in over half the states in the country

    In the past 40 years. One thing they all have in common, folks complain about road conditions. From Big Dig in Boston (total disaster) to Minnesota pot holes, to Atlanta construction, to Arizona heat buckles…. Every state goes about financing their roads differently but all have troubles. It is a bottomless pit of raising taxes on citizens with little to no satisfaction for drivers. Minnesota by the way, taxes more than any other state for roads and I see where folks are not happy either.

  11. Submitted by David Schimpf on 05/18/2016 - 10:38 am.

    A fuel tax proposal

    Revenue raised by increasing license tab fees would be paid for only by Minnesotans. A higher fuel tax would be paid by non-resident visitors as well as by Minnesotans. Because transportation funding fell behind badly when the Legislature or Governor would not raise the fuel tax from 1988 to 2008, the can was kicked down the road to us while the infrastructure fell apart. The opportunity for added revenue from visitors was squandered. Those visitors add to the burden on roads and bridges. Raise the fuel tax, but acknowledge the catch-up nature of the situation and include a sunset date for the full increase. Our tax is not low now compared to states next door, but the state acted irresponsibly for 20 years.

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