Gaming That Pesky State Sales Tax

Nothing much of note happened on August 1, 1967. Except that it was the first day Minnesota started collecting a state sales tax.

The tax was three percent and that was huge. Suddenly, you had to pay three more cents for every dollar you spent on a lot of goods and some services. Pennies meant something back then. I knew because I was 12 and had very few. You didn’t see any “take a penny, leave a penny” trays at checkouts. It didn’t matter to me that the tax helped pay for a number of government services I benefitted from. At that age I didn’t pay any taxes. Mowing and shoveling jobs didn’t earn me enough to pay income tax.

A lot of people ran out and bought what they could before the sales tax started. There were a lot of “pre sales tax” sales that weren’t real sales since the stores didn’t even need to lower prices for people to save three percent by buying early. I was mostly dismayed that a 45 rpm record was now more than a dollar ($.99 plus three cents tax). It took me a long time to remember to include sales tax. I’d save just enough to buy something only to suddenly remember that I needed more to cover sales tax.

Some people looked for ways to beat the sales tax. Two such people were Catherine’s paternal grandparents – John and Fran Friedrich. John, a former wholesale grocer in town, knew the value of things and he didn’t like the tax. He wasn’t against taxes but believed sales taxes were regressive, hurting the poor (and kids like me) more than the well-off. So he and Frances fought it whenever they could. Their tactics were very calculated.

When you filed your income tax return back then there was a standard sales tax deduction you could take or you could deduct the total amount you paid in sales tax. But you needed the receipts in case you got audited. That’s a lot of work. John collected every receipt he could to get every penny back. There is no deduction for sales tax anymore so don’t waste your time collecting receipts.

Fran would take a station wagon full of grandkids to Dairy Queen and give each kid the exact amount needed for one ice cream cone. There was no tax on the cost of one small cone but if she paid for all of them on one bill there would be tax. It must have annoyed the staff, but it was perfectly legal. We’ve probably all gamed the sales tax system at one time or another.

Catherine also has relatives who lived in Texas and visited Minnesota every summer. In Texas the sales tax included clothes. So Catherine’s aunt bought her kids’ school clothes in Minnesota to avoid paying sales tax back home.

Since its inception the sales tax rate has climbed to  6.875%. But this current rate hasn’t changed since 2009, which might be surprising until you consider that other separate taxes and fees have been introduced or increased during that time. These include local taxes which can add up. Duluth and Cook County have the highest rate in the state at 7.875%.

Even though the sales tax rate has not changed for awhile, the rate in Red Wing (and much of the state) is 7.375% which is the 6.875% state sales tax plus a .5% county transit tax, used for transportation and transit. If you examine a sales receipt, the sales tax will likely just show 7.375% instead of breaking it down.

Sales tax rates are often used when comparing the cost of living between states so it looks better when a state can keep the sales tax low or at least constant. There have been times when reducing the Minnesota sales tax was proposed. That looks good until you find out that the trade-off would be that a currently untaxed good like clothing would now be taxed. Those proposals never flew.

Wisconsin residents often buy clothes in Minnesota since clothing is taxed there. South Dakota taxes groceries so some of their border residents shop at Minnesota or Iowa grocery stores. On the other hand, South Dakota doesn’t have a state income tax. Neither does Texas for that matter. Taxes don’t disappear. They just get moved somewhere else, usually where they won’t be noticed. Legislators are crafty at that.

It almost seems that a complicated sales tax rate of 7.375% is intentional. It’s hard enough to remember that rate but you also need a calculator to figure the tax. So we mostly don’t bother even trying to figure it out. We just pay it and move on. And remember, tax is always rounded up.

I remember hearing former governor Rudy Perpich answer a question criticizing the taxes we pay in Minnesota. He simply said, “People want services. Services have to be paid for and that’s through taxes.”

A pet peeve of mine while working for Goodhue County was that local government had to pay sales tax. That’s like paying a tax on tax money. That happened because former governor Arne Carlson implemented it as a last-minute way to balance the state budget. Fortunately, that has been rescinded.

The tax games continue. Taxes are inconvenient but necessary. John and Frances Friedrich, Democrats, knew it and accepted it. They just didn’t like being reminded every time they bought something.

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