What Is Tax Incidence?
“Tax incidence” can be thought of as a measure of how much of a certain type of tax the state collects, and from whom the state collects that tax. Every two years, the Minnesota Department of Revenue conducts a tax incidence study to determine how the tax landscape in Minnesota has changed and to identify meaningful changes in who is paying what type of tax. Read on for a full summary of tax incidence findings and key features of the tax system relevant to local governments based on this report.
Major Types of Taxes
All taxes in Minnesota fall into one of the following categories:
- Income tax
- Consumption tax (sales tax)
- Property tax
The pie chart on the left below shows the share of each type of tax as a percent of all taxes collected in 2023. Each of these categories contains the taxes paid by both individuals and businesses. For example, property tax includes taxes paid by homeowners, apartment owners, and businesses with physical property in Minnesota.
Source: MN Department of Revenue 2026 Minnesota Tax Incidence Study
The second pie chart (above right) shows an estimate of this breakdown for 2028. You’ll notice that both income tax and consumption tax are lower, and property taxes are about 4% higher. There are a number of reasons for this shift; for example, one time COVID-19 funding produced a higher level of income taxes and consumption taxes but did not affect property taxes as much. Additionally, with the repeal of the renter’s property tax refund and enactment of the renter’s credit, taxable income will be lower, and property tax collected will be higher.
Are Minnesota’s Taxes Regressive or Progressive?
Figure 2-5 below shows each major tax type in Minnesota, indexed by how progressive or regressive it is. A negative number indicates that the tax is regressive overall, while a positive number indicates that it is progressive overall. Some taxes are inherently regressive, like sales tax, because lower-income families spend most of their income on taxable necessities and therefore bear a higher burden relative to their incomes. As you move left, taxes become more regressive, and as you move right, taxes become more progressive. The size of each tax bubble represents the total number of dollars paid for that tax in 2023. You’ll notice that the largest bubble, income taxes, is a progressive tax, while the next two largest bubbles, home property tax and sales tax, are regressive.
Finally, the study concludes the following notable trends:
- The local tax share of tax revenue rose from 27.3% in 2021 to 28.8% in 2023 and is projected to rise to 32.0% in 2028.
- Minnesota’s refundable income tax credits and property tax refunds substantially reduce overall regressivity.
- Overall, Minnesota’s tax system is trending slightly toward progressivity between now and 2028.
For questions about this analysis, please contact CGMC Director of Research & Analytics Derrick Miedaner at djmiedaner@flaherty-hood.com.
