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It’s Tax Day, so get to know where Minnesota’s revenue comes from

Individual income taxes make up about half of all tax revenue for the state of Minnesota, or about $11 billion dollars in 2017.

It’s April 15, otherwise known as Tax Day, otherwise known as the last day you can file your income taxes without getting in trouble (unless you’ve filed for an extension).

So to mark the (sad/happy?) occasion, here’s a reminder of where Minnesota’s tax revenue comes from — and where it goes.

Income tax

Individual income taxes make up about half of all tax revenue for the state of Minnesota, or about $11 billion dollars in 2017. That translates to around 46 cents of every dollar in revenue the state takes in.

Share of state tax collections, 2017
Note: mining occupation taxes, airflight property taxes and aircraft registration taxes, which make up less than 0.1 percent of collections each, are not included. This chart does not include local tax collection.
Source: Minnesota Department of Revenue

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The total income tax haul averages out to about $1,95o per Minnesotan, but it obviously varies a lot in terms of how it affects individuals, given that those with different income levels pay income taxes at different rates. The state currently has four tax brackets, ranging from 5.35 percent for people in the lowest bracket to 9.85 for those in the highest. The top rate kicks in at $163,890 for a single, individual filer or $273,150 for a married couple filing jointly.

Sales tax

The second biggest revenue category comes from the sales tax, something anybody who’s ever purchased pretty much anything in a store is familiar with.

Sales tax revenues made up about 24 percent of state tax collections in 2017, or about $5.7 billion.

In Minnesota, the state sales tax rate is 6.875 percent — on the high end among U.S. states, though groceries, prescription drugs and clothing are exempt from the tax. Some cities and counties have their own sales taxes they tack on to the state’s.

Corporate franchise tax

Minnesota is one of the majority of states that taxes corporate profits through what’s called a corporate franchise tax, the current rate for which is a flat 9.8 percent.

That figure puts the state near the top in terms of taxes for corporations, according to the Tax Foundation, a think tank that promotes lower taxes.

The corporate franchise tax brings in roughly $1.2 billion, or about 5 percent of revenue, which made it the third biggest source of tax revenue for the state in 2017.

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Motor fuel excise tax

Better known as the gas tax, the motor fuel excise tax is the subject of one of the biggest battles at the Legislature this year.

Like the general sales tax, the gas tax — currently set at 28.6 cents per gallon — is set up so that people who use more pay more. But unlike the sales tax, the gas tax is what’s called a “dedicated” revenue stream, which means it can only go toward one thing. In this case, that’s roads and bridges. In 2017, the it raised $911 million, enough to pay for about 20 percent of all transportation funding in Minnesota.

Gov. Tim Walz wants to raise the gas tax by 20 cents per gallon to pay for road improvements, while Republicans — who control the state Senate — say the state should find other sources to fund the fixes.

Minnesota’s gas tax currently falls near the middle of such taxes among states. Alaska’s 15 cent-per-gallon gas tax is the lowest, while Pennsylvania’s 59 cent-per-gallon is the highest. The federal gas tax, which people in all U.S. states pay at the pump, is 18 cents per gallon.

Property tax

Local governments are the beneficiaries of almost all property taxes in Minnesota, with one notable exception.

State government’s fifth biggest source of revenue is the state property tax, a special tax established in 2001 to try to balance out property tax relief. Property classifications included in this category are cabins, commercial industrial and utility properties. The tax generated $860 million in 2017, or about 4 percent of state tax collections.

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Property taxes make up a much bigger share of tax collections if you account for all revenue taken in by state and local governments. In fact, about 28 percent of tax revenues come from property taxes, compared to 33 percent of total state and local tax revenue that comes from income.

Share of state and local tax collections by fiscal year
Source: Minnesota Department of Revenue

That’s a big departure from the way it used to be. Until the late 1960s, property taxes made up the majority of taxes Minnesotans paid to state and local governments.

That changed under what became known as the “Minnesota Miracle,” a set of policies that changed the state’s tax structure.

At the time, school funding was closely tied to the local property tax base, which meant school districts that served wealthy neighborhoods had a lot more money than districts serving poor neighborhoods. But in 1971, the Legislature passed a series of reforms that funneled more tax revenue to the state government, where it was redistributed through local government aid to equalize funding for schools, cities and counties.

In the decades since, Minnesota’s tax system has evolved into one that’s pretty balanced across revenue streams, said Eric Willette, tax research director at the Minnesota Department of Revenue. That can be helpful because different taxes have different strengths and weaknesses, Willette said. Income taxes, for example, can be volatile, capturing booms and busts in the economy. Property taxes are more stable during good times and bad, while sales taxes fall in the middle.

“One of the upsides of that is the different taxes sort of have different virtues,” Willette said of Minnesota’s mix of taxes.

Where it all goes

So what does all this money pay for?

More than a third of state tax dollars fund education, from early education through high school; a quarter go to health care; a tenth go toward transportation; 6 percent go to property tax aid and credits; and 6 percent go toward higher education.

Share of state expenditures
Source: Minnesota Department of Management and Budget