Taxes and Operating Expenses
Business Taxes
Minnesota's business taxes are very competitive and give companies a distinct advantage when it comes to the costs of doing business.
Considering business taxes as a share of private sector gross state product, Minnesota ranked among the 16 lowest-taxing states in the nation in fiscal year 2009, according to a report by Ernst & Young and the Council on State Taxation.
Corporate Income Tax
Minnesota is currently phasing in a single factor sales apportionment of corporate income by the year 2014.
Minnesota’s lack of a throwback rule (sales to states without income taxes “thrown back” to the taxing state for apportionment purposes) reduces net income, and a generous carry-forward period helps reduce tax liabilities. States such as California and North Carolina have throwback for sales to the U.S. government
Minnesota has one of the most generous foreign royalty deductions in the country. Minnesota corporations can license technology to foreign corporations and deduct 80 percent of the foreign royalties they receive if the payer is a member of the unitary group.
Breakdown of Corporate Income Taxes
Corporate Income Tax Rate 9.80 percent
Apportionment Formula (sales/property/payroll) 90/5/5 (Tax Year 2011)
R & D Credit Refundable; 10 percent of first
$2 million of qualified expenses
and 2.5 percent thereafter.
Foreign Royalties Deduction Yes (80% deductible)
Throwback Rule No
Sales to U.S. Government Throwback No
Carryforward Yes (zero back, 15 forward)
Sales and Use Tax
Minnesota refunds sales tax paid on capital equipment used in the manufacturing process.
There are several other major exemptions for businesses, including fees for equipment installation repair, and most services. Utilities, chemicals, and gases used in industrial production are also exempt.
Breakdown of Sales and Use Taxes
State Sales and Use Tax Rate 6.875 percent
Maximum Local Sales Tax Rate 1.00 percent
Tax on Manufacturing Machinery No (refunded)
Tax on Utilities No
Industrial Property Taxes
Minnesota exempts personal property like machinery and inventory from the property tax, producing a lower effective tax rate for real and personal property.
As a result, businesses whose equipment and inventory values are high relative to their real estate value pay a lower effective tax rate than in states that impose such taxes.
Minnesota’s property taxes were ranked 18th best in the nation in the Tax Foundation's 2011 State Business Tax Climate Index.
Minnesota's Property Tax Base
Tax on Personal Property No
Tax on Intangible Property No
Tax on Inventories No
Commercial and Industrial Property Tax
$1 Million Land & Building Value,
$750,000 Machinery & Equipment,
$600,000 Inventories,
$150,000 Fixtures $32,342
$25 Million Land & Building Value
$18.75 Million Machinery & Equipment,
$15 Million Inventories,
$3.75 Million Fixtures $836,978
Estimates are property taxes for a representative property in an urban area. Source: Minnesota Taxpayers' Association, April 2010.
Unemployment Insurance Tax
Minnesota companies with the most favorable employment histories received an unemployment insurance base tax rate of 0.5 percent in 2010.
Average Unemployment Insurance Taxes in 2009
Taxable Wage Base: $26,000
Average Tax Rate (Total / Taxable Wages): 0.80 percent / 1.73 percent
Average State Tax per Worker at Tax Base: $450
Source: U.S. Department of Labor
Workers Compensation Insurance
Employers generally arrange workers’ compensation coverage with private insurers at a market rate. Minnesota’s insurance industry is very competitive, allowing for substantially reduced market-rate premiums.
Average Workers Compensation Premium Rates in 2010
Average Premium Rates per $100 of Payroll $2.27
Ranking: 16th Highest
Source: State of Oregon, October 2010.
Utility Costs
Minnesota’s energy services are extremely reliable and cost less than the national average.
Our low electricity costs are a competitive advantage. The average price for industrial customers is 6 percent lower than the national average, based on 2009 data from the U.S. Energy Information Administration.
According to 2009 data from the Edison Electric Institute, the typical electric bill for medium-sized industrial users in Minnesota is $27,457, much lower than in most states including New York ($48,257), Georgia ($36,026), Wisconsin ($31,372), and even lower than the national average of $34,705.
For natural gas for industrial customers, Minnesota beats more than 40 states with an average gas price among the lowest.