Most taxes we pay are hidden, at least to some degree. They are taken out of our paychecks or tacked on to other purchases
That’s not the case with license tab fees. It is one of the few taxes for which we specifically have to break out our wallets every year. Tab fees may be annoying, but they serve an important function. Proceeds from vehicle registrations goes into the Highway User Tax Distribution Fund. That revenue is allocated to roads throughout the state. In 2018 it amounted to $781 million — about 31% of state highway revenue.
But the system needs work. In fact, a report last year from the Legislative Auditor found that many Minnesotans are being overcharged for their license tabs.
Why is it happening?
Currently, the amount you pay is determined by a formula involving the Manufacturers Suggested Retail Price (MSRP) and the vehicle’s age. In theory, everyone who owns the same make, model, and year vehicle will pay the same tab fee. Except that’s not always what happens.
MSRP comes directly from the manufacturer, and sometimes they provide that information too slowly. In some cases, base value information comes from a national automotive data provider, but there are times when certain vehicle information is not available. In both circumstances, deputy registrars are forced to make their best guess about a vehicle’s cost based on the limited information they have.
I am part of the Vehicle Registration Task Force. The task force was put together as part of a larger discussion about how to move on from MNLARS, but our main responsibility is correcting the way we calculate tab fees. We will look at taxation structures, registration periods, potential financial impacts of any changes, implications for IT systems, and much more, and report our recommendations to the legislature by Jan. 15, 2020.
One thing I want to emphasize: we are not raising tab fees. Correcting the way tab fees are calculated may result in some increases or reductions on an individual basis, but the reforms will be revenue neutral. We are not raising additional money and most of you will end up paying the same amount as before.
It is still too early to say for sure what our recommendations will include, but we are looking at several possibilities. One idea is to charge tab fees based on the weight of your vehicle. From a practical standpoint, this makes a lot of sense — heavier vehicles do the most damage to the road. Another idea is to use some other value when MSRP is not available. Perhaps vehicle sale price.
Over the next few months we will examine the issue carefully with input from a wide variety of experts. I also want to hear your feedback. Please shoot me an email at email@example.com or call me at 651-296-9457 and let me know what you think.