Raising sales taxes to pay for trains - Finance & Commerce

Would you drive from Minneapolis to Wisconsin ? just to save $100 on a car? Would you make the trip to save $7 on a refrigerator?

The Hiawatha Light Rail Transit line from Minneapolis to Bloomington is among the projects that receive funding from the quarter-cent Metropolitan Area Sales Tax. The sales tax could be increased to help cover a projected transit funding gap. (File photo: Bill Klotz)

Those are the type of questions that are likely bedeviling state Transportation Finance Advisory Committee members as they discuss an idea to raise Twin Cities sales tax rates by half a percentage point. The sales tax hike would raise billions for mass transit projects.

The core Minneapolis-St. Paul counties of Anoka, Dakota, Hennepin, Ramsey and Washington already charge an extra 0.25 percent in sales taxes to help fund transit projects.

Trains are nifty and convenient, for sure. But Minnesota also happens to be at a disadvantage compared with other states when it comes to sales tax rates.

On average, purchases in Minnesota get taxed at a 7.17 percent rate, according to a recent Tax Foundation study.?

Here?s how the rate stacks up to the average state and local rates in neighboring states:

n? Minnesota ? 7.17%

n? Iowa ? 6.82%

n? North Dakota ? 6.42%

n? South Dakota ? 5.83%

n? Wisconsin ? 5.43%

Minnesota, however, excludes food and many clothing items from sales taxes.

Would businesses selling other type of products really suffer from a hike of 0.50 percent? Even with big ticket items, the difference would not be much ? an extra $100 for a $20,000 car, for example. Would people really make the trip for the savings?

On the flip side, mass transit boosters worry that the Twin Cities area is falling behind similar metro areas such as Denver when it comes to building out transit lines.

The potential to catch a speedy train to work is a quality of life issue that might be important for a corporation deciding whether to locate or expand in Minneapolis-St. Paul.

Tags: mass transit, Minneapolis, Minnesota, sales taxes, St. Paul, Transportation Finance Advisory Committee, Twin Cities

Source: http://finance-commerce.com/bizcost/2012/11/raising-sales-taxes-to-pay-for-trains/

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