Social Security subtraction, repeal of delivery fee clear House committee

Updated 6:52 p.m. 

One of the House Republicans’ top priorities on recent campaigns has returned.

Starting its legislative journey in the House Transportation Finance and Policy Committee on Monday was the almost-annual effort to create an individual income tax subtraction for all Social Security benefits.

The reason it’s in transportation is that the bulk of the bill is about fuel taxes and redistributing the revenue in the transportation advancement account. It’s all part of HF5, sponsored by Rep. Jim Joy (R-Hawley).

After being altered by an author’s amendment, then amended and amended again, the bill was approved by the committee early Monday evening on an 8-7 party-line vote and is on its way to the House Taxes Committee.

“This is making Minnesota more affordable for seniors and everybody,” Joy said. “It reduces tax on Social Security. That’s what we promised at the doors the last two years. … This is getting rid of the delivery fee. This is the first time in Minnesota we’ve had tax on clothing, because of the delivery fee.

“This is also taking the automatic inflator on gas taxes and getting rid of that,” Joy continued. “… As we continue to put more and more gas tax on Minnesota, our bordering states are selling more fuel to people who live in Minnesota. And we’re not getting the road funding we talk about in this bill. This also does a study to look at tab fees. They went up 36% in Minnesota.”

In addition to exempting all Social Security benefits from the state’s individual income tax, the bill would:

• repeal the retail delivery fee, currently 50 cents on deliveries of $100 or more;
• halt indexing on the motor fuels tax, leaving the per gallon gasoline excise tax rate at 31.8 cents;
• re-allocate some transportation-related state and regional sales taxes; and
• direct the Department of Public Safety to perform an analysis of the motor vehicle registration tax.

The bill would also amend the distribution formula for transportation advancement account funds to eliminate the share that goes to counties in the Twin Cities metropolitan area. It would take what is currently 36% of the fund and redistribute it to the county state-aid highway fund, the large cities and small cities assistance accounts, and the town road account.

Transportation Commissioner Nancy Daubenberger does not like the bill.

“If the Legislature enacts reductions in planned transportation investments that would result from House File 5, pavement, bridge and other roadway infrastructure conditions will suffer,” she said. “These spending cuts will result in fewer transportation construction projects. … If Minnesota wants to keep attracting residents and being economically viable, then we need to have resources available.”

DFL members unsuccessfully offered six other amendments, most of which would have deleted sections of the bill.

“I think this is not a serious piece of legislation, and it’s blowing a huge hole in our transportation budget," said Rep. Erin Koegel (DFL-Spring Lake Park).

As for taxes on Social Security benefits: Currently, Minnesotans married filing jointly with incomes under $108,320 pay no taxes on such benefits, the same being true of single filers making less than $84,490.

The Department of Revenue estimates that full Social Security subtraction would reduce the state’s General Fund by $390.7 million in fiscal year 2026 and $415.7 million in fiscal year 2027. With the change, the department estimates that 211,700 returns would have an average reduction in tax of $1,845.