Minnesota legislators who worry about predicted transportation funding deficits are eyeing several familiar types of transactions to tax, including deliveries from services like Amazon and DoorDash, and rides from services like Uber and Lyft.
Such rideshare and delivery fees are among a series of taxes moving through the House Transportation Committee to supplement traditional sources of money that pay for roads: gasoline taxes, tab fees, sales taxes on car parts and special transportation sales taxes. Sponsors of the bills said they are searching for new ways to fund transportation and transit, especially ways that won’t face the same declines in revenue versus inflation that the 28.6 cent-per-gallon gas tax has.
“I’ve been affectionately calling this bill my Taylor Swift Anti-Hero bill. ‘It’s me. I’m the problem,’” said Rep, Erin Koegel, a Spring Lake Park DFLer who is sponsoring House File 580. The bill would place a 75-cent fee on most package deliveries. The song lyric describes Koegel’s personal assessment of how many Amazon deliveries she gets a week. The average of five would end up costing her just shy of $200 annually if the bill passes.
Rep. Frank Hornstein’s House File 2882 would apply a percentage fee on each ride by what the bill calls Transportation Network Companies but most people know as Uber and Lyft. Hornstein, the chair of the House Transportation Committee, said he doesn’t drive and relies on transit and Lyft to get around.
He termed his bill and Koegel’s bill “new and innovative” ways to raise money for transportation, pointing to Colorado as a state pioneering such an approach to transportation revenue. His more traditional House File 2346 would give the Met Council authority to impose a three-quarters of one percent sales tax in the seven county metro area for transit construction, maintenance and operation.
“While we do have an opportunity for general fund money, we also need long-term, dedicated, sustainable, reliable money for transportation,” the Minneapolis DFLer told his committee Thursday. While his current version would apply a percentage tax on the price of each ride, he said he is considering changing it to a flat, per-ride fee similar to the way Koegel would assess deliveries.
The so-called Amazon fee is expected to raise about $210 million a year. The form of the ride service fee is still in flux between a flat fee and a percentage fee and estimates are still being analyzed. In Colorado, a 30 cent per ride flat fee is estimated to produce about $20 million a year in revenue. The sales tax for transit of 75-cents on each $100 purchase would raise between $550,000 and $600 million a year. Hornstein is also looking at increasing the annual car tab fees for vehicle owners that would raise $200 million a year.
Joel Carlson, a lobbyist working for Uber, said the bill should treat all passenger services the same — limo services, taxis. And he told the committee that services like Uber already pay high license fees and another special fee every time a car picks up or drops off a passenger at MSP.
The Uber bill would send revenue to state highway accounts, metro area transit and greater Minnesota transit.
Most of the pushback Thursday came from opponents of the package delivery fee. While Koegel mentioned Amazon, opponents included local pizza chains, small delivery companies and grocery stores.
J.J. Haywood, the CEO of Pizza Luce, said it competes with larger pizza businesses by offering free delivery. That would not be allowed under the bill which requires it be listed separately on the receipt.
“This fee is regressive, impacting our guests and delivery employees,” she said. “While 75 cents might not seem like a lot, it is significant.” Last week, 42% of the chain’s deliveries were for $25 or less. The fee would amount to 3% extra.
“How is it fair that the delivery of a $3,000 bike, couch or washing machine in a 10-ton box truck pays the same as an $11 hoagie sandwich delivered in the 3,000-pound compact car?” Haywood said.
A letter from 14 different business organizations including Hospitality Minnesota, the Minnesota Chamber of Commerce and the state License Beverage Association, Retail Association and Grocers Association raised issues it considered “insurmountable challenges.”
“The proposed delivery fee will impact every Minnesotan, no matter the size of their budget or where they live,” the letter stated. “As we face economic uncertainty and families make decisions about their spending, under this bill, should they choose delivery, Minnesotans will be penalized.”
The delivery fee bill would take effect July 1, 2024, and would distribute the money to the state highway fund, large cities, small cities and towns. The fee would only be applied if the items being delivered are subject to sales taxes, a provision that would exempt groceries and prescription drugs. But a single taxable item in a shipment would subject it to the fee.
It would devote some of the funds to the “food delivery support account” that would give money to the Minnesota Board on Aging for grants to food delivery nonprofits helping seniors.
Supporters include LIUNA and the Transportation Alliance that represents construction companies and unions and some local governments.
“There is no silver bullet or panacea when it comes to paying for our roads, bridges and transit system,” said Margaret Donahoe, executive director of the alliance. “Every source we have come up with over the years has faced some sort of criticism. There is never the right moment to fund our transportation system.”
But overreliance on the gas tax means other ideas need to be found, she said.
“We think this could be part of the comprehensive omnibus transportation package,” she said, saying it is used in other states and large cities.
The Met Council sales tax is in House File 2346 would be the first significant source of money going to that regional agency. Counties in the state are already allowed to impose a transportation sales tax and it is that source that is being used by Hennepin and Ramsey counties for their contributions to regional projects like light rail and bus rapid transit.
Any new regional taxes would be on top of the current 6.875% state sales tax and the up-to 1.5% local option sales tax. The current sales tax in Hennepin and Ramsey counties is 8.025. Another bill in the House and Senate would add a 0.25% sales tax hike in the same Met Council area for housing projects and programs. It would be distributed to a state rental assistance program and to metro counties and cities.
Hennepin County Commissioner Marion Greene, who is chair of the Hennepin County Regional Rail Authority, said the money is needed to both build and operate transit.
“A metro sales tax means dedicated, stable funding to bring the transit systems out of constant budget crises and provide more equitable, efficient service to meet our region’s needs,” Greene said. “The sales tax should also cover operations for the entire transit system to ensure that the Met Council has financial accountability in operating decisions.”
The latter statement refers to the Office of Legislature Auditor (OLA) report on the Southwest Light Rail Transit project that said the Met Council should have a financial stake in the project, not just manage a project paid for with federal, regional and county funds.
“The Legislature should create a framework in which the government entity responsible for light rail construction also bears some financial responsibility for construction costs and any potential cost increases,” Greene said, quoting from the audit.
But Greene objected to a provision in the bill that none of the revenue could be used for the SWLRT project, contradicting the OLA suggestion.
“The language prohibiting funding for the project does the opposite and it does nothing to finish the project,” she said.
The Hornstein proposal is much larger than what Gov. Tim Walz proposed — a 0.125% sales tax that would produce $153 million a year for transit in the Twin Cities.
Hastings Republican Rep. Shane Hudella said he worried about the cumulative effect of all of the tax bills.
“It’s tough to swallow a tax increase when we have big surpluses, right?” he said. “I’m just worried about all this combined additional tax for folks trying to get around in the state.”
Transportation budget writers have struggled to explain the fact that transportation funding is facing deficits while the state budget has been breaking records for surpluses with each new forecast. The state Department of Transportation testified in January that car taxes and gas taxes suffered more during the pandemic than general taxes. Gas sales dropped during shutdowns and when prices spiked last summer. Car sales suffered during the pandemic and again when chip shortages extended delivery times.
Metro Transit also testified that it has been facing operating deficits for years but their impact was delayed by special state appropriations in 2019 and by an influx in money from the three major pandemic-era response bills by Congress. The ending of emergency funding has the agency heading toward what it terms a fiscal cliff for transit finances.