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Competive Cost of Doing Business Rate-to-rate tax comparisons can be misleading. They rarely consider fees, tax exemptions or qualifiers which can recast a “low-tax state” as a high-cost state. To get a true picture of the cost of locating or expanding in a given state, businesses often look at the Cost-of-Doing-Business Index. Published annually by the Milken Institute, it measures wage costs, taxes, electricity costs and real estate costs for industrial and office space in every state. In 2007, Minnesota dropped in Milken’s overall ranking to 13th place – thanks in large part to its low cost of electricity and office rent. Both factors fall in the lower third among states. In fact, rising electricity costs caused several states to jump in the 2007 rankings, according to the Milken Institute. Another way of gauging the cost of doing business is to measure the tax impact on profits. The Federal Reserve Bank of Boston used this bottom-line approach in 2004. Its findings placed Minnesota very favorably in terms of tax burden. The state taxed less than 32% of business profits, well below the national average of almost 36%.
Minnesota's Business Tax Climate Minnesota ranks 42nd in the Tax Foundation's 2008 State Business Tax Climate Index, but favorably against several Midwestern states. It has lower business taxes than Ohio (46th), Iowa (45th) and Nebraska (43rd). The Index compares states in five areas of taxation that impact business: corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes, and property taxes – including residential and commercial.
Minnesota's Corporate Income Tax System Minnesota's corporate tax rate is a flat 9.8% on all corporate income. In 2007, the state began phasing in an eight-year, single sales apportionment of corporate income tax. This will lower the tax for companies that sell most of their products outside of Minnesota. The state also offers a 5.8% alternative minimum tax levied on Minnesota property, payroll and sales. In 2006, state-level corporate tax collections (excluding local taxes) were $207.44 per capita. (Tax Foundation)
Minnesota's State/Local Taxes Minnesota’s 2007 state and local tax burden is estimated at 11.5% of income, only slightly above the national average of 11%. Minnesotans average $4,971 per capita in state and local taxes. On the positive side, per capita state income is relatively high at $43,121. (Tax Foundation)
Minnesota's Individual Income Tax System Minnesota's 2008 personal income tax system has three separate brackets, beginning at 5.35% and moving to 7.85% at income levels above $69,990.
Minnesota Sales & Use Tax Minnesota is one of 54 states which imposes a sales tax. Its 6.5% general sales tax is slightly above the national median of 5.4 %. However, the state has one of the narrowest tax bases in the country. It does not tax clothing or food used for home consumption. The state exempts capital machinery and equipment used in the manufacturing process from sales tax. It also provides exemptions for fuel and electricity used in R & D and manufacturing, effectively lowering the net sales tax for many businesses. Minnesota's gasoline tax is relatively low at $.22 per gallon. That puts it 30th nationally. Minnesota's cigarette tax stands at $1.49 per pack of twenty, putting it 17th nationally. (Tax Foundation)
Minnesota Property Taxes Minnesota is among the 37 states which collect property taxes at the state and local levels. In 2008, it ranked 19th in the Tax Foundation’s national property tax index. Its ranking has improved in recent years based on significant property tax reforms. Minnesota exempts personal property like machinery and inventory from property tax, an advantage to equipment-intensive businesses. It does not tax intangible property either. (Tax Foundation)
Unemployment Insurance Tax Minnesota's average unemployment tax rate per worker was .97% in 2007. Minnesota companies with favorable employment histories earn a low unemployment insurance base tax of .04%. In 2007, such a company would have paid about $134 in taxes on a taxable wage base of $24,000. (Positively Minnesota)
Workers’ Compensation Insurance Minnesota significantly reduced to the cost of its workers’ compensation system in the mid-1990s, hitting an all-time low in 2000. The average workers' compensation cost per $100 of payroll for the manufacturing industry was $4.17 in 2007. This places Minnesota in the middle of the country in terms of costs.
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