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Minnesota has 17th highest average combined state and local sales tax

(The Center Square) – Minnesota has the sixth-highest state sales tax rate in the nation, but its average local sales tax rate diminishes the state’s combined state and local sales tax rate in relation to other states, according to a new Tax Foundation report.

It also has a lower cap on local tax rates compared with many states, Tax Foundation’s Feb. 7 report showed.

Combining Minnesota’s state tax rate, 6.875%, with its Census 2010 population-weighted average local tax rate (.61%), which as of Jan. 1, results in a rate of 7.49%. That’s the 17th highest in the nation. The state allows localities to have a sales tax of up to 2%.

According to Minnesota Department of Revenue records, most cities and counties’ sales and use tax or transit sales and use tax is .5% or .25%. Areas that have higher taxes include Cook County, Detroit Lakes, Duluth, East Grand Forks, Hermantown, Rochester, Two Harbors Virginia and Walker.

Minneapolis has a .5% sales and use tax. It also has a downtown liquor tax, a downtown restaurant tax, an entertainment tax and a lodging tax, and each of these taxes is 3%. St. Paul has a .5% sales tax, a .5% use tax and a 3% lodging tax for less than 50 rooms and 7% for 50 or more rooms.

Gov. Tim Walz has proposed a 1/8th cent sales tax in the seven-county metropolitan areas beginning in October to help address the operating and capital needs of the Metropolitan Council’s transit program.

Minnesota’s one of 44 states that have a state sales tax and one of 38 states that have local sales taxes. Retail sales taxes are easier for taxpayers to understand, since they can see them on sales receipts, but they’re just one part of an overall tax structure, Tax Foundation’s report said.

For example, Tennessee’s 9.548% average combined state and local sales tax rate is the second-highest in the nation, but the state doesn’t tax income.

“While many factors influence business location and investment decisions, sales taxes are something within policymakers’ control that can have immediate impacts,” the report said.

Customers might travel to shop or buy products online to avoid paying higher sales taxes, while businesses might set up shop near, but not in, residential areas that have high sales taxes, the report said.

In addition to Tennessee, Louisiana (9.550%), Arkansas (9.46%), Alabama (9.25%) and Oklahoma (8.98%) are among the states with the highest average combined state and local sales tax rates.

Alaska, which doesn’t have statewide sales taxes, has the lowest average combined state and local sales tax rate: 1.76%. The state allows local governments to charge local sales taxes of up to 7.5%.

Delaware, Montana, New Hampshire and Oregon also don’t have statewide sales taxes. Wisconsin (5.43%) has the fourth-lowest average combined rate.

Illinois has a 6.25% state sales tax rate, or the 13th highest in the country. Its average local tax rate is 2.57%. The combined rate, 8.82%, is the eighth-highest in the nation.

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