Politics and Government

Sales tax increase funding housing, transit in Twin Cities metro goes into effect Oct. 1

Minnesota Capitol building is shown
The Minnesota State Capitol building is shown on Wednesday, July 26, 2023, in St. Paul. The DFL-led Minnesota Legislature passed a sales tax increase in the Twin Cities metro earlier this year that will fund housing and transit.
Kerem Yücel | MPR News File

Consumers in the Twin Cities metro area can expect items to be a little pricier as a new sales tax increase goes into effect on Sunday.

Anoka, Carver, Dakota, Hennepin, Scott, Ramsey and Washington are the seven counties in the metropolitan area that will see a one percent tax increase. In other words, whenever you spend $100 there will be an extra $1 added onto the receipt. Groceries, clothing and prescription drugs will still remain exempt from sales taxes.

The tax hike was put into play this last legislative session when lawmakers approved local sales tax funds to support better transportation and affordable housing. Over the next four years, collections from the new sales tax are expected to reach $2 billion.

A quarter-cent of the sales tax increase is set to address housing, which is broken down into two sections. One is a new state rental assistance program that will provide up to 5,000 new rental vouchers statewide; 3,000 of those will be for low income renters in the metro area. The other part funds the production of new affordable homes through city and county aid.

Ben Helvick Anderson, vice president of policy and organizing for Beacon Interfaith Housing Collaborative, said this is the next step in Minnesota’s response to the need for housing vouchers.

“Only one in four people who qualify for Section 8 vouchers can get one, so there is just a huge demand. This causes a huge ripple effect across the housing sector,” he said.

Theresa Dolata, who has experienced homelessness and housing insecurity, wishes there was more funding but said it's going to help many Minnesotans.

“We didn’t get enough but we got more than we could've if we didn’t fight,” she said.

On the other hand, John Reynolds, state director of National Federation of Independent Business, has concerns that the tax increases will have a bad impact on small businesses.

“It eats into the bottom line of mom and pop shops – even though inflation has slowed the prices haven't gone down,” he said.

Reynolds also said the new sales taxes make Minnesota less competitive regionally.

“You're within an hour or so of the broader area of Wisconsin which most of our metro is. You're at a disadvantage as a seller or a small business because you can cross this imaginary line and things cost one, two, three percent cheaper,” Reynolds said.

Agreeing with Republican lawmakers, Reynolds thinks that programs should have been funded from the state's record $17.5 billion surplus.

He said the sales taxes are “regressive for both individuals and for small business.”

Funding from the new 3⁄4-cent regional transportation sales tax will be split between the seven counties and the Metropolitan Council. Priorities for funding include public safety on transit and service expansions and improvements.