Why Are Car Tabs So Expensive in Minnesota?
Minnesotans looking to renew their vehicle registration are often shocked when they receive their renewal notice and see the total owed.
With various taxes and fees tacked on, the cost to renew your license plates can easily exceed $400 or even $500 depending on the vehicle. This leads many drivers to ask—why are car tabs so expensive in Minnesota?
What Factors Determine the Cost of Car Tabs in Minnesota?
There are several components that factor into the registration renewal fees for a passenger vehicle in Minnesota:
- Base administrative fees – This includes a $10 registration tax and $7 filing fee charged on all vehicle renewals.
- Wheelage tax – Counties and cities may charge an additional “wheelage tax” up to $20 that goes towards transportation projects in that jurisdiction. For example, Hennepin County tacks on a $10 wheelage tax and Ramsey County charges $20.
- Value-based tax – The bulk of the tab renewal cost comes from a value-based tax assessed at 1.285% of the vehicle’s base value. This value starts out as the Manufacturer’s Suggested Retail Price (MSRP) when the car is new and declines by 10% each subsequent year.
Once you add together all these piece parts, it quickly adds up to one hefty registration renewal payment. And Minnesota isn’t shy about collecting its pound of flesh.
According to the State Auditor, Minnesota has one of the highest vehicle registration taxes in the country.
How Does This Compare to Other States’ Car Tabs?
Many other states use more straightforward formulas to calculate registration fees. For example, Florida charges a flat $225 upfront sales tax when you first register a vehicle there.
Then you simply pay around $32-37 per year after that as a base registration fee depending on vehicle weight. The fees stay the same year after year regardless of depreciation.
Other states employ different schemes. Iowa registration is based on the vehicle’s value and weight. Missouri uses horsepower to set its rates.
But most states stay away from Minnesota’s uniquely convoluted value-based approach.
Why Does Minnesota Have Such High Fees?
Minnesota’s complex value-based formula originated back in 2008 when the state legislature instituted a series of tax increases and budget shifts that allowed them to fund transportation projects.
By tying registration taxes to vehicle value, they found a way to collect more revenue without explicitly raising tax rates.
Of course, the used car market has exploded over the past 15 years. As used vehicle prices reach all-time highs, Minnesota drivers feel the pinch through pricier yearly registration fees.
And because those fees are based partially on the original MSRP, they fail to decline at the same rate as actual used car values.
This mismatch has caused many motorists to cry foul over inflated valuations and exorbitant tabs. And the courts agreed – ruling the valuation process unconstitutional in 2020 and forcing refunds to be issued.
Yet the Minnesota legislature continues to stick by the core formula, making minor tweaks but maintaining the value-based tax concept.
How Do You Save Money on Minnesota Car Tabs?
If you’re a driver looking to reduce your registration renewal fees in Minnesota, you have a couple options:
- Request a tab fee refund – If you believe the value assessed on your vehicle is too high, you can request the DVS recalculate your tax and potentially issue a refund for prior years. You need to provide evidence like used car pricing data to support your request.
- Buy an older used car – Since the value tax drops 10% per year, you can save hundreds simply by buying an older used vehicle. Once a car hits 11 years old, the rate levels out at $25 regardless of original MSRP. So an older economy car can have tabs under $100 while a newer luxury car exceeds $400.
What Does the Future Hold for Minnesota Car Tabs?
In the 2023 legislative session, lawmakers approved bill SF2781 which further increases registration taxes starting in 2024.
Under the new law, the value-based tax formula rises from 1.285% to 1.575% of MSRP. The wheelage tax also increases by $5 while the minimum fee for older vehicles drops by $5.
So while the complex Minnesota vehicle tab pricing system remains intact for now, drivers will see the costs continue to creep upwards over time. That means we all need to brace for more sticker shock when we go to renew those pesky license plates next year!
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