Minnesota proposes historic sales tax cut while expanding taxable services

Minnesota's Committee on Taxes has proposed a significant overhaul of the state's sales tax system, aiming to create a fairer and more stable revenue source for the future. During a recent meeting, lawmakers discussed a plan to cut the statewide sales tax rate from 6.5% to 6.425%, marking the first sales tax rate reduction in the state's history. This change is expected to save taxpayers approximately $99 million in fiscal year 2027.

The proposal also seeks to expand the sales tax base to include a wider range of services, reflecting the shift in the economy from goods to services over the past decades. Currently, about 60% of the economy consists of services, yet the sales tax has not kept pace with this change. By broadening the tax base, the committee believes it can achieve greater fairness for consumers and businesses alike.

Under the new plan, individuals and families will see modest tax cuts. For example, a family earning around $130,000 could expect a reduction of about $37 if they spend $550 or less on newly taxed services. However, those spending more than this threshold may face an increase in taxes. Importantly, the proposal excludes business-to-business sales taxes, meaning that businesses will benefit from tax cuts on materials and equipment necessary for operations, such as construction supplies.

The committee acknowledged that the expansion of taxable services may raise questions about what is included. To address these concerns, the Department of Revenue will provide clear guidelines on taxable services, ensuring transparency for consumers and businesses.

As discussions continue, lawmakers are open to feedback and suggestions to refine the proposal. The committee emphasized the importance of creating a tax system that is equitable and reflective of Minnesota's evolving economy. The next steps will involve further deliberation and input from stakeholders as the state moves toward implementing these changes.