Minnesota’s tax revenue sources are led by three big streams: the individual income tax, the general sales and use tax, and the corporate franchise tax. Smaller but meaningful contributions come from excise taxes on tobacco, alcohol, and motor vehicles; the state estate tax; property taxes (mostly local, with a state slice); and newer or targeted taxes on cannabis and solid waste. Most of this money flows into the General Fund, where the legislature can appropriate it for schools, healthcare, and other state purposes. A portion is locked into dedicated funds by statute or constitutional amendment and cannot be redirected.
Individual Income Tax: The Largest Source
The individual income tax brings in more revenue than any other single tax in Minnesota. The 2026 Minnesota Tax Incidence Study put income taxes at roughly 41.8% of all state and local tax collections in 2023, with the share projected to drift toward 39% by 2028 as other categories grow.1Minnesota Department of Revenue. 2026 Minnesota Tax Incidence Study
The state uses a progressive structure with four marginal rates. For tax year 2026, those rates are 5.35%, 6.80%, 7.85%, and 9.85%.2Minnesota Department of Revenue. Income Tax Rates and Brackets A single filer pays 5.35% on the first $33,310 of taxable income and reaches the 9.85% top rate on income above $203,150. Married couples filing jointly hit the top bracket at $337,930.
Credits trim what residents actually owe. The Minnesota Child Tax Credit, for example, provides up to $1,750 per child under 18 with no cap on the number of children claimed, phasing out starting at $37,910 for married joint filers and $31,950 for others.3Minnesota Department of Revenue. Minnesota Child Tax Credit Credits like this reduce collections before the money reaches the treasury rather than showing up as separate spending.
Sales and Use Tax: Second-Largest Source
Minnesota’s general sales tax rate is 6.875%. That number is built from a 6.5% base rate plus an added 0.375% dedicated to the Legacy Amendment funds, a surcharge added by constitutional amendment that is set to expire in 2034.4Minnesota Office of the Revisor of Statutes. Minnesota Code 297A.62 – Sales Tax Imposed; Rates Local governments can add their own sales taxes on top, so the rate at the register varies by city and county.
The tax applies to most retail sales of tangible goods and some services, but clothing and groceries are exempt. The use tax covers the other side: when you buy from an out-of-state or online seller that doesn’t collect Minnesota sales tax, you owe the equivalent amount directly to the state. That keeps revenue from leaking across state lines. Together, sales and use taxes drove the consumption tax category to about 30.6% of combined state and local revenue in 2023.1Minnesota Department of Revenue. 2026 Minnesota Tax Incidence Study
Corporate Franchise Tax
Corporations doing business in Minnesota pay a flat 9.8% franchise tax on their Minnesota-sourced net income.5Minnesota House of Representatives. Corporate Franchise Tax For multistate companies, the state determines what counts as Minnesota-sourced by looking at the share of total sales made to buyers located here. A company making 20% of its nationwide sales to Minnesota customers apportions 20% of its income to the state.
On top of that, corporations, partnerships, and LLCs owe a minimum fee tied to combined Minnesota property, payroll, and sales. The 2026 schedule:
- Under $1,280,000: $0
- $1,280,000 to $2,559,999: $260
- $2,560,000 to $12,829,999: $770
- $12,830,000 to $25,639,999: $2,560
- $25,640,000 to $51,279,999: $5,140
- $51,280,000 or more: $12,830
The fee is paid in addition to whatever a business owes under the regular tax calculation.6Minnesota Department of Revenue. Minimum Fee A company reporting no taxable profit still contributes something if it has a meaningful footprint in the state.
Excise Taxes
Excise taxes target specific goods and are built into the shelf price rather than added at checkout. They sit on top of the general sales tax where that also applies.
Tobacco and E-Cigarettes
Cigarettes are taxed at 15.2 cents each, or $3.04 per 20-cigarette pack. Other tobacco products have their own rates under the same chapter.7Minnesota Office of the Revisor of Statutes. Minnesota Statutes Chapter 297F – Cigarettes and Tobacco Taxes Electronic cigarettes and nicotine solutions face a separate excise tax of 95% of the wholesale price, among the highest vaping tax rates in the country.
Alcohol
Alcoholic beverages are taxed by volume and type. Distilled spirits carry the steepest rate at $5.03 per liter. Wine runs from $0.30 per liter at the low-alcohol end up to $3.52 per liter above 24% alcohol, with sparkling wine at $1.82 and cider at $0.16.8Minnesota Office of the Revisor of Statutes. Minnesota Code 297G.03 – Tax on Distilled Spirits and Wine Beer is taxed under a separate section of the same chapter.
Motor Vehicles
Buying a vehicle registered in Minnesota triggers a motor vehicle excise tax of 6.875% on the purchase price, matching the general sales tax rate.9Minnesota Office of the Revisor of Statutes. Minnesota Code 297B.02 – Tax Imposed It applies whether the car was bought in-state or elsewhere. A portion of these collections flows into the Highway User Tax Distribution Fund rather than the General Fund.
Property Tax
Property taxes fund both local and state purposes, with most of the money staying local. Cities, counties, school districts, and special taxing districts each set their own levy, and the county auditor combines them into a single bill. The formula multiplies a property’s taxable market value by a classification rate to produce its tax capacity, then applies the combined local tax rate.10Minnesota Department of Revenue. Understanding Property Tax
Certain property types, including seasonal cabins and commercial-industrial parcels, also pay a state general property tax that goes into the state General Fund. Homeowners under a set income threshold may qualify for a Homestead Credit Refund, and a separate “special” refund is available to homeowners whose property taxes jumped sharply from one year to the next, regardless of income.
Estate Tax
Minnesota is one of a minority of states with its own estate tax. The exemption is $3 million; estates valued below that after deductions owe nothing.11Minnesota House of Representatives. The Minnesota Estate Tax Above that line, five brackets apply, starting at 13% and reaching 16% on amounts above $10.1 million.12Minnesota Office of the Revisor of Statutes. Minnesota Code 291.03 – Rates Transfers to a surviving spouse and charitable bequests reduce the taxable estate. Because the $3 million threshold sits well below the federal exemption, some estates owe Minnesota tax while owing nothing to the IRS, a gap that often catches families with farm or business assets by surprise.
Newer and Targeted Revenue Streams
Minnesota legalized adult-use cannabis in 2023 and issued the first dispensary licenses in mid-2025, with retail sales expected to begin in 2026. The original legislation set a 10% gross receipts tax on retail cannabis; a 2025 budget agreement raised that to 15%. The gross receipts tax applies on top of the 6.875% state sales tax, putting the combined state-level burden above 20%. Actual revenue will depend on how quickly the licensed market scales against the existing unregulated market.
The solid waste management tax applies to mixed municipal solid waste at 9.75% of the service price for residential customers and 17% for commercial haulers and self-haulers.13Minnesota Department of Revenue. Solid Waste Management Tax Information The service price covers collection, transportation, processing, disposal fees, fuel surcharges, and charges for bags or stickers. Construction and demolition debris carries a separate per-unit rate. These collections are small next to the income or sales tax but tie waste generation to environmental cleanup costs.
How the State Collects the Money
The Minnesota Department of Revenue administers most state taxes, processing returns, running audits, and handling enforcement. Most filing and payment now runs electronically.
Income tax revenue arrives through employer withholding. Businesses pull both state and federal income taxes from employee paychecks and remit them throughout the year.14Minnesota Department of Employment and Economic Development. Business Tax Liabilities That steady flow is why income tax collections do not arrive in one lump at filing season. Self-employed residents and businesses owing corporate franchise tax typically make estimated quarterly payments. Late or missed payments trigger interest, and persistent noncompliance can escalate to liens or legal action.
Where the Money Goes
State law dictates where each revenue source gets deposited and what it can pay for.15Minnesota Management and Budget. Current Estimates of State Budget
The General Fund is the largest and most flexible account. It receives the bulk of individual income, corporate franchise, and sales tax collections, and lawmakers can appropriate from it for essentially any authorized state purpose. Education, healthcare, and human services take the largest shares in most budget cycles.
Dedicated funds work on a different principle: revenue going in is restricted by law or constitution. The Legacy Amendment is the clearest example, with the 0.375% sales tax surcharge constitutionally earmarked for four funds covering outdoor heritage, parks and trails, arts and cultural heritage, and clean water.16Minnesota Department of Agriculture. Clean Water Land and Legacy Amendment The legislature cannot shift that money into the General Fund.
The Highway User Tax Distribution Fund operates the same way. It takes in motor fuel taxes, vehicle registration fees, a share of motor vehicle sales tax, and auto parts sales tax, and the money stays with roads and bridges, split between the state trunk highway system and local governments. Those taxes are effectively pre-committed before the legislature writes a budget.