A Brief History of Minnesota Taxes

History of Minnesota Taxes

Minnesota’s tax system predates statehood. In 1849, the first territorial assembly established a property tax levy to support schools— nine years before Minnesota became a state, in 1858.

Property taxes remained the main source of revenue until the 1920s, when the growing number of automobiles in the state forced the legislature to find a way to pay for a state highway system. In 1920, the amendment to the state constitution that authorized a trunk highway system also provided for a 2 percent registration tax on the purchase of motor vehicles. (Prior to the amendment, the tax had been a flat $1.50 per vehicle.) Five years later, a 2 cent per gallon gas tax was established to meet the growing need for additional highway funds.

The next major change in the state’s tax system came as the hardships of the Great Depression made property taxes harder to collect. Between 1929 and 1933, the number of property tax delinquencies in the state doubled. At the same time, citizens looked to the state for services that local governments, charities and other private resources were unable to provide. The need for more revenue to meet citizen demand, combined with the need for tax relief for property owners, led the legislature to establish the state income tax. Minnesota adopted individual and corporate income tax systems in 1933.

The shift toward income tax and away from property tax as the major source of state revenue continued in the 1950s and 1960s. In 1967, the state turned over the collection of property taxes to the counties. The department continued to assist local government officials in administering the property tax system, but the primary responsibility for assessing property and collecting taxes was delegated to the counties.

In that same year, the state instituted the sales tax, in part to offset the loss in revenue it experienced by turning property taxes over to local governments. However, the department established a system for the uniform valuation and taxation of property and continued to provide property tax relief in the form of state aid to local governments.

Further reform in 2001 aimed at making the property tax a purely local tax. It provided for full state funding of the state-determined general education formula, and reformed the property tax classification rates to ensure more fairness in taxation of different kinds of property. It also changed how some properties are taxed to promote more fairness and accountability.