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Minnesota business taxes rank low

The Council on State Taxation released its annual study of states' business taxes this week. The council is a non-partisan association of 600 corporate tax attorneys that, each year, measures taxes paid as a portion of private business activity in each state to determine which states are most attractive for businesses.

The study typically ranks Minnesota's business taxes near the lowest in the nation, and this year was no different. After studying all state and local taxes imposed on businesses, as well as credits and deductions offered, Minnesota is shown to have the 15th-lowest business taxes in the nation.

Many wonder how this can be true, since political rhetoric often cites Minnesota as a high-tax state with, "One of the highest corporate tax rates in the country." This particular study is important because it doesn't just measure the flat corporate tax rate -- which, at 9.8 percent in Minnesota, is the second-highest in the nation -- as most other studies do. Instead, it considers all tax credits, tax deductions and other incentives also offered to businesses that locate in each particular state. After those are accounted for, Minnesota fares well compared to the rest of the country.

Specifically, the study shows Minnesota's total state and local taxes collected from businesses are far below other states -- about $940 million less than the national average. And although Minnesota's flat corporate income tax rate is one of the higher in the nation, the deductions and credits available to businesses lower that burden by as much as 70 percent, according to the study.  

The Minnesota Legislature always has placed a high value on tax benefits and other incentives that can be used to attract companies to this state.

This year, the Legislature passed a comprehensive jobs bill that improved business tax incentives to attract more of these types of companies. An Angel Investor Tax Credit, an economic development tool used by 29 other states, was added. It provides tax credits worth up to 25 percent of investments made in a high-technology, bioscience or green technology business. The jobs that this type of credit attracts have an average annual salary of $49,000, according to Minnesota's Department of Employment and Economic Development.

That jobs bill also included a new tax credit for historic structure rehabilitation projects. It's modeled after an already-offered federal tax credit that provides reimbursement for the cost of rehabilitating structures that have been designated as historic, or which are located in a certified historic district. This credit accomplishes two things: it helps improve historic buildings across the state in desperate need of remodel, and it creates new jobs for the building trades and design professionals, both industries which have experienced unemployment rates as high as 50 percent in the past year.

The study released last week supports the Legislature's work to secure a diverse range of tax incentives that appeal to a wide variety of businesses. Companies look at a state's tax rate when deciding where to settle, but they also consider the level of support available to their specific industries or targeted area of the state. Minnesota has been offering these types of assistance in year's past, which is why global companies, as well as small, locally owned businesses, choose to reside here, according to the study.