Minnesota Fuel Taxes to Jump 12% in 2025 Due to New Law

Beginning January 1, Minnesota's motor fuel taxes will increase by approximately 12% for diesel, gasoline, biodiesel, and other fuels. This adjustment follows a law enacted in 2023 that links fuel tax rates to the Minnesota Highway Construction Cost Index. As a result, the tax for diesel, biodiesel, and gasoline will rise from 28.5 cents to 31.8 cents per gallon, while ethanol will increase from 20.25 cents to 22.59 cents per gallon. The overall rate includes an excise tax of 28.3 cents and a 3.5-cent debt service surcharge. The increase in motor fuel taxes is anticipated to generate about $1 million in revenue by the end of fiscal 2025, funds earmarked for state transportation projects. The adjustment is made annually and is capped at a 3% increase starting in 2025. Nationally, highway construction costs have risen significantly, impacting the purchasing power of federal infrastructure funds. As of mid-2023, the National Highway Construction Cost Index was at an all-time high, having increased 3.8% in a single quarter. From a transportation perspective, the index's upward trend reflects broader economic stressors, including labor shortages and material costs, which often lead to delays in project completions and rising expenses. Linking fuel tax rates to construction costs makes sense in maintaining infrastructure, but ongoing monitoring of these adjustments is essential to ensure that tax burdens do not disproportionately affect consumers or hinder transportation equity. Increasing investment in alternative transportation modes can also mitigate the impact of fuel tax hikes on individuals reliant on automobiles.