Minnesotans will be discovering the many ways the “historic” trifecta of 2023 hit them in the pocket for years. Not only did it blow through a budget surplus of $18 billion, but it hiked taxes and fees by another $10 billion, in what was already one of the most highly taxed states in America. Here is one example.
The warning
In February 2023, my colleague, Bill Glahn, wrote:
HF 1992/SF 1946 was introduced yesterday, which includes Gov. Walz’ proposed transportation budget for the next two years.
…
The provision that would raise the license tab fee in the first year of your car’s life by basing the tax on 160 percent of the Manufacturer’s Suggested Retail Price (MSRP) can be found on page 31, line 22 of the bill, as introduced.
Democrats are playing games with the depreciation schedule in order to make the dubious claim that this measure is actually a tax cut, as the tax rate (of 1.285 percent per year) remains unchanged (p. 30, ln. 25), while the minimum tax is being reduced by 5 dollars per year (p. 31, ln. 29). These changes would take effect for calendar year 2024.
Make no mistake, the tab fee increase is a 60 percent tax hike in year one, and more hikes in years two through ten. The tax increase will add hundreds of dollars to the cost of middle-class car ownership, at a time of record state budget surpluses. The cost of owning a $40,000 car would go up by nearly $800. This amount is in addition to the thousands of dollars in taxes and fees you pay just to drive the car off the lot.
We tried to fight this hike with our “Don’t Jack the Tax” campaign but, alas, were unsuccessful, and the measure became law with the support of every single Democrat, including those “moderates” we keep hearing about.
The reality
Last week, KSTP’s Tom Hauser produced a report titled: “Wonder why your license tab fees aren’t going down? Here’s why…“
Lately, many Minnesotans who own vehicles less than five years old have probably noticed that their license tabs are not decreasing in cost every year, unlike in the past, as their vehicle ages.
“I just can’t get my head around it. I don’t understand the math,” says Joe Swanson of Plymouth. “The expressed frustration that I’ve heard since I noticed mine (haven’t gone down) and asked friends and acquaintances is that it doesn’t seem to go down anymore, and it used to go down every year.”
State records show the state portion of Swanson’s tab fees has stayed the same, $398, in 2024, 2025 and for the tabs he’s already purchased for 2026.
“Tab fees used to tumble down pretty dramatically as the car aged and you’re not seeing that anymore,” says Scott Lambert of the Minnesota Auto Dealers Association (MADA). He says along with higher motor vehicle sales taxes, tab fees are making vehicle ownership much more expensive in Minnesota.
We spot-checked dozens of late-model vehicles using an online tool on the Minnesota Driver and Vehicle Services website, which allows you to see what the cost of tabs is for any vehicle by simply entering the license plate number.
No personal information about the owner comes up — just the tab cost. What we found is that most vehicles purchased since 2020 are paying higher tab fees than before and they’re either not going down at all or very little.
What is causing this hit to affordability for Minnesotans?
…in 2023, the DFL-controlled Minnesota Legislature approved a new formula for determining license tab fees.
For vehicles initially registered before Nov. 16, 2020, the tax rate for tab fees increased from 1.25% to 1.54% with the starting point being the manufacturer’s suggested retail price (MSRP).
If you registered your vehicle for the first time after Nov. 16, 2020, the tax rate went from 1.285% to 1.575%. At the same time, the legislature slowed the pace at which your vehicle depreciates.
Instead of going down 10% per year after the first year, your vehicle’s value now goes down 5% per year. So, in your third year of ownership, your vehicle has only depreciated 10%, and the state taxes you as if your vehicle is worth 90% of its original value. It doesn’t start going down 10% per year until the fourth year.
Meanwhile, Kelley Blue Book, a bible of sorts for car valuations, estimates the average vehicle depreciates about 40% in the first three years.
The new law and formula for license tab fees went into effect on Jan. 1, 2024.
“What (vehicle owners) are seeing is their number isn’t decreasing the way it used to,” says Lambert of MADA. “A three-year-old car seems like an old car, but its taxes are the same. It’s not right.”
DFL Senate Transportation Committee Chair Scott Dibble:
…acknowledges that license tab fees are more expensive, especially for people with newer and more expensive vehicles. “Tab fees are more progressive. In other words, they relate more closely with someone’s ability to pay, to the price of the car. And they go down every year. There’s what we call a depreciation schedule.”
When we showed him state records showing that vehicles as old as six or seven years have tab fees that aren’t decreasing much, if at all, as they’ve aged, he said the legislature was transparent about what would happen in order to raise more money for roads and bridges.
“I think it was pretty clear. We had a lot of discussions, hearings and debate over how to broaden and diversify the sources that pay for our roadway system.”
It’s unclear how many lawmakers and taxpayers knew what the license tab changes would mean.
They would have if they had been following American Experiment.
As Bill concluded in 2023:
Charging a fee based on a property value that you never saw would be considered fraud in any other context. At the legislature, it’s just considered clever lawyering.
This is One Expensive Minnesota.
