At 6.875 percent, Minnesota has one of the highest sales tax rates of any state in the nation. But it's also one of the few states that exempts clothing from the tax.
So would you be OK with a lower sales tax rate in exchange for letting the state tax clothing purchases over, say, $200? That's one of the key questions lawmakers will face this session as they seek to remake the state's tax structure.
MPR News reporter Mark Zdechlik's story today details efforts by DFL Sen. Ann Rest to tax clothing. He writes, "When Rest proposed taxing clothing sales a few years ago, officials concluded the broader sales tax would bring in enough money to lower the 6.875 percent tax rate by half a percentage point and pay for the tax credits."
Even with a half percentage point drop, Minnesota's sales tax would still be high relative to its neighbors. Mouse over the states to see the sales tax rates. The dark green states, including Minnesota, charge the highest sales tax.
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Source: Sales Tax Institute
Among the states that impose a sales tax, eight (Minnesota, Pennsylvania, Rhode Island, Texas, Vermont, New York, New Jersey, Massachusetts) provide some exemption for clothing, according to The Tax Foundation, a nonpartisan research group.
Minnesota's high end clothing retailers are pushing back at the prospect of a clothing sales tax. The Mall of America, where apparel accounts for more than half of all sales, says the current clothing sales tax exemption is one of the main reasons tourists around the world travel to the mall.
While the clothing fight will take center stage in the coming weeks, the larger problem with the sales tax is that consumers are shifting more of their purchases away from goods and toward services, which largely go untaxed.
Gov. Dayton is expected to offer a comprehensive tax reform plan in the coming weeks, but he's acknowledged the challenges of making change. In December he told MPR News it will be a tough sell to expand the sales tax to goods and services that are currently exempt.
"Two-thirds of our economy now is services, and yet we tax very few of those," said Dayton. "Broadening that base sounds good in concept. But it also means you tax things that aren't being taxed now, and nobody is going to like that."
In the end, even if changes are made to the sales tax and what's covered, it won't alone solve the larger problem of taxing goods sold in Minnesota.