Minneapolis explores a city income tax as a way to grow tax revenue
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Gov. Walz announced $33 million in funding that will go to support new and developing small businesses in Minnesota. The new funds are the second round of money made available through the State Small Business Credit Initiative.
MINNEAPOLIS (FOX 9) - A new report is suggesting new ways for the City of Minneapolis to boost tax revenue, including imposing new taxes, like a city income tax, as the city lags behind other similar metros.
New report on tax revenue
The problem:
The report shows Minneapolis' per capita tax revenue (simply the amount of money the city brings in through taxes) is lower than comparable cities.
At a meeting on Wednesday, the Minneapolis Board of Estimate and Taxation will receive a report on how to increase its revenue, which includes suggestions for new taxes.
By the numbers:
One major factor behind the discrepancy in tax revenue is the fact that Minneapolis pulls much of its revenue from property taxes (87%) and has seen property values decline in recent years. The report is pushing the city to diversify its revenue base.
At the same time, as the city seeks new revenue sources, the report is also urging a dual approach, calling for the city to improve collections of existing revenue sources.
New potential taxes in Minneapolis
Local perspective:
The report lays out suggestions to increase revenue, including some new taxes that might raise some eyebrows.
It also suggests ideas like a city-level income tax along with congestion pricing, a controversial tax that was imposed in New York City in 2025.
While heavily criticized, a recent review by Cornell found the toll led to a drop in traffic, crashes and pollution.
The report includes a list of strategies Minneapolis could pursue to grow revenue.
The list includes:
- Real estate transfer tax: Tax imposed on the transfer of property ownership.
- Payment in lieu of taxes: Voluntary payment made by a nonprofit entity to compensate for some or all of the property tax revenue lost due to tax-exempt status.
- Individual income tax: A city income tax.
- Empty Homes tax: Tax on residential or commercial property that remains vacant for a specified period.
- Asset monetization: Using public assets – land, buildings, infrastructure – to generate revenue. The report notes ideas like outdoor advertising and selling or leasing public land.
- Business tax: Tax levied on a business' income, payroll, profits, or specific activities.
- Special service district: Charge for providing enhanced services or improvements in a defined geographic area beyond what the city normally provides.
- Betterment levy: Charge on property owners who benefit from an increase in property value due to public infrastructure projects or improvements.
- Congestion pricing: Tax for using certain roads or entering areas during peak traffic periods.
- Excise tax: Tax imposed on specific goods or services – tobacco, alcohol, fuel – at the time of their purchase.
- Arts access tax: Tax on residents in certain jurisdictions to support arts education and cultural programs.
- Service fee: Charge for providing services to individuals or businesses like vehicle registration, building permitting park entrance.
Big picture view:
Ultimately, the report focused on the top five strategies above: real estate transfer tax, payment in lieu of taxes, individual income tax, empty homes tax, and asset monetization.
The report then assessed these strategies based on several metrics, like their potential to generate revenue, equity of tax burden distribution, sustainability and public acceptability.
The report points out that some of the strategies would be easier to implement than others.
For example, the city income tax would be difficult to implement, requiring approval from the state legislature to go into effect.
On the other hand, a payment in lieu of a tax plan would be voluntary and easy to move forward with.
As for asset monetization, the ease of implementation would depend on what the city plans to do.