State revenues for the F.Y. 2000-01 biennium under the Governor's budget will total $23.067 billion, a 9.3% average annual increase over F.Y. 1999 (after rebates and permanent tax reductions).

State revenues come primarily (87.6%) from four major taxes: personal income, sales, corporate income , and motor vehicle sales taxes.

Personal income tax: is the largest source of state tax revenue. The tax is based on Federal taxable income, and has 3 graduated rates based on income levels: 6%, 8%, 8.5%.

Sales tax: is set at 6.5% of the sales price. The tax base excludes purchases for resale, food, clothing, prescription medications, heating fuels and water, and new capital equipment. A lower rate is in effect for replacement capital equipment.

Corporate income tax: is paid by domestic and foreign corporations, including banks, doing business in Minnesota. The 9.8% tax is based on Federal taxable income.

Motor Vehicle Sales tax: is 6.5% on the purchase price (less trade-in value) of any vehicle required to be registered in Minnesota.

The remaining state general fund tax revenues come from a variety of taxes on alcohol, tobacco, deed and mortgage registration, insurance gross earnings, health care providers, and others. The state also receives non-tax revenues from tobacco lawsuit payments, departmental earnings, and investment income earned on balances in the state treasury, among other sources.

The Governor's budget includes proposals that reduce tax revenues by $2.459 billion, including a $1.087 billion sales tax rebate for F.Y. 1999, a reduction in motor vehicle registration taxes of $287 million (offset by a transfer of general fund resources to the highway funds),and income tax proposals to phase out the "marriage penalty", reduce the lowest tax rate from 6% to 5.75%, and expand the amount of taxpayer's income taxed at the lowest rate, which reduce revenues by approximately $844 million.