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If MN Raises Tab Fees For Transportation, How Does It Work And Who Pays?

If MN Raises Tab Fees For Transportation, How Does It Work And Who Pays?

Everything you ever wanted to know about the policy — and politics — of Minnesota's vehicle tab fees.

When it comes to the transportation debate in St. Paul, there are plenty of disagreements.
 
To name a few, Democrats want to raise the state’s per-gallon gas tax to pay for road and bridge improvements; Republican do not. Democrats want to raise sales taxes in the metro area to pay for transit projects; Republicans are opposed to spending money on light rail. Democrats don’t want to dedicate more of the state’s current budget to transportation; Republicans argue it’s one of government's core responsibilities.
 
On Monday, however, Gov. Mark Dayton offered up a different option: Raise the price Minnesotans pay each year for those little colorful registration tabs that stick on their license plates.
 
Both Republicans and Democrats have left the door open to that idea so far, giving some a sliver of hope that there could be a deal on transportation funding yet this year.
 
Here’s a breakdown of how vehicle tab fees work in Minnesota, how Dayton’s proposed plan would change that — and the politics behind it all:
 
How do vehicle tab fees work?
In Minnesota, legislators and the governor set motor vehicle tab costs in state law. Current law sets a base fee $10 to register a vehicle, but then adds on an additional cost of 1.25 percent of the value of the vehicle. That price is usually based off the manufacturer's suggested retail price, so it doesn’t matter if someone got a better deal on a car or truck than someone else.
 
On the high end, a brand new $60,000 vehicle is currently subject to $760 in tab fees in its first year, while a new $15,000 vehicle costs $198 in fees. The value of the vehicle goes down about 10 percent each year, the state estimates, and thus so do tab fees. After 11 years, the state simply charges vehicle owners a flat $25 plus $16 in extra fees. All told, the Federal Highway Administration estimates the average Minnesotan pays $125 in tab fees each year.
 
So how would that change under Dayton’s plan?
Dayton’s first proposal, which includes a five-cent gas tax increase, would raise $250 million a year in license tab fees by raising the base tab fee from $10 to $20 and raising the rate from 1.25 percent to 1.65 percent. Under that plan, that $60,000 brand new vehicle would be subject to $1,010 in tab fees the first year, while a $15,000 new car would cost $268 in fees. The law would also raise the minimum amount a person can pay in tab fees a year from $25 to $35.
 
The second proposal doesn’t include the gas tax increase, so Dayton makes up the difference by getting more money from tab fees, a total of $400 million. Under this plan, there would be a $20 base fee, $35 minimum fee and a 1.63 percent rate increase. But the real way the second proposal raises so much more money over time is slowing down the assumed depreciation rates for the car, keeping registration fees higher for longer.
 
You can see a breakdown of how the fees would go up under Dayton’s first proposal here and second proposal here. The governor also released a side-by-side of current law and the two plans.
 
Is the Legislature OK with that?
Not exactly. Senate Democrats included a small license tab fee increase in their last offer to House Republicans to forge a transportation deal, but on Monday, Republican Speaker Kurt Daudt equated the tab fees to a new kind of tax increase on Minnesotans. 
 
“You are literally doubling the amount some people pay for their license tabs,” Daudt said. “We might be willing to discuss a small amount, but it’s tough to say you’re going to double the amount people are paying for their license tabs and not feel like there’s going to be some pushback from the public.” 
 
When was the last time lawmakers changed the tab fees?
The state’s vehicle tab fees usually come up when there’s any major transportation funding debate in St. Paul. In general, they are more palatable to some politicians than raising the gas tax, but others equate them to a tax increase by another name.
 
Former Republican Gov. Tim Pawlenty proposed an increase in tab fees in lieu of a gas tax in 2003, but it was rejected by legislators. In 2008, lawmakers approved both a gas tax and a tab fee increase as part of a major transportation funding package. Pawlenty originally vetoed the bill, but a DFL-controlled House managed to garner enough Republican votes to override his veto. The 2008 Legislature raised the fees by phasing out the popular $189 and $99 registration caps instituted during Gov. Jesse Ventura’s administration.
 
Increasing tab fees is generally not popular with the public, but with Republicans pushing hard against the gas tax, Dayton said he didn’t have many other options to find funding. “There’s no free lunch,” he said. “General fund comes from taxpayers, tab fees come from taxpayers, gas tax comes from taxpayers. There’s no one else who is going to pay for improving our transportation system except for all of us.”
 
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How do Minnesota’s tab fees compare to other states?
Every state requires motor vehicles to be registered with state’s transportation agency, but the method of calculating the amount varies greatly among the states. Maryland, for instance, calculates registration fees by the weight of the vehicle, while other states charge different fees based on if the vehicle is a car or a truck. Other states just have a flat tab fee each year, with Mississippi’s tab price as low as $14 per year and Illinois’s as high as $100 a year. Montana has a similar system to Minnesota, requiring a $217 tab fee for cars under four years old. Those fees steadily go down to $28 a year for cars that are more than 11 years old. The National Conference of State Legislatures has a full breakdown of how other states handle tab fees.
 
What’s next?
Leaders of all four caucuses planned to take Dayton’s transportation offers back to their members on Monday, with hopes to reconvene for negotiations and settle on a deal by Tuesday evening, Daudt said.