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 as the 20th-lowest taxing state in the nation in fiscal year 2012, 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 Dakota have throwback for sales to the U.S. government.
Breakdown of Corporate Income Taxes
Corporate Income Tax Rate: 9.8 percent
Apportionment Formula (sales/property/payroll): 96/2/2 (Tax Year 2013), 100 percent sales thereafter
R & D Credit: 10 percent of first $2 million of qualified expenses and 2.5 percent thereafter
Throwback Rule: No
Sales to U.S. Government Throwback: No
Carry forward: Yes (zero back, 15 taxable years forward)
Sales and Use Tax
Minnesota currently refunds sales tax paid on capital equipment (machinery and equipment) used in the manufacturing process. Beginning September 1, 2014, there will be an upfront exemption on these taxes.
There are several other major exemptions for businesses, including fees for equipment, installation and many other services. Utilities, chemicals, and gases used in industrial production are also exempt.
For qualified data centers, the following purchases are exempt:
Enterprise information technology equipment
Electricity used in the operation of the center
Computer software (refund)
A qualified data center is a facility in Minnesota that consist of at least 25,000 square feet, where the total cost of construction or refurbishment, investment in information technology equipment and computer software is at least $30 million within a period of 48 months.
Breakdown of Sales and Use Taxes
State Sales and Use Tax Rate: 6.875 percent
Local Sales Tax Rate Range: 0.00 percent to 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.
According to the Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence, Minneapolis’ net tax for a $2.5 million urban industrial property is $40,539 lower than in cities such as Michigan ($69,689), Indiana ($54,000) and Missouri ($53,799). For a $2.5 million rural industrial property, the estimated tax is $39,060, lower than Indiana ($58,448), Kansas ($47,761) and Florida ($43,242).
Unemployment Insurance Tax
In Minnesota, the taxable wage base is set in statute as 60 percent of the state's average annual wage. Minnesota’s taxable wage base for 2013 is $29,000. The base tax rate is 0.5 percent and the new employer rate either is 3.0 percent (non-high experience rating) or 9.4 percent (high experience rating).
The 2013 Legislation passed a significant unemployment insurance tax reduction of $347 million. As a result, for calendar year 2014, the base tax rate is 0.1 percent. There will be no additional assessment assigned. If, on September 30, 2014 the Unemployment Trust Fund is more than $900 million, the base tax rate for calendar 2015 will be 0.1 percent with no additional assessment assigned.
Average Unemployment Insurance Taxes in 2013
Taxable Wage Base: $29,000
Tax Base Rate: 0.5 percent
Tax Rate for New Employers: Either:
3.00 percent (2.50 percent tax rate for new employers in a non-high experience rating industry plus 0.50 percent base tax rate for 2013).
9.40 (8.90 percent tax rate for new employers in a high experience rating industry plus 0.50% base tax rate for your 2013).
Minimum Time To Experience Rate: 18 months ending June 30
Source: Minnesota Department of Employment and Economic Development.
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 2012
Average Premium Rates per $100 of Payroll: $2.03
Ranking: 17th highest
Source: State of Oregon, October 2012.
Minnesota’s energy services are extremely reliable and cost less than the national average.
According to 2012 data from the Edison Electric Institute, Minnesota’s typical electric bill for medium-size industrial users ($31,060) is 15 percent lower than the national rate ($36,549). The state’s typical electric bill for medium-size commercial users ($1,188) is 22 percent lower than the national rate ($1,516).
Data from the Energy Information Administration reveals that in 2011 Minnesota’s average industrial price of electricity (6.51¢ per kilowatt/hour) was lower than the national rate (6.89¢ per kilowatt/hour) and the state’s average commercial price of electricity (8.58¢ per kilowatt/hour) was 17 percent lower than the national rate (10.32¢ per kilowatt/hour).
Minnesota had the ninth lowest average price for natural gas ($5.55 per thousand cubic feet) among industrial users nationwide. The state also had the eighth lowest average price for natural gas ($7.46 per thousand cubic feet) among commercial users in the country.
Select the links below to use our Compare Minnesota tool to see how we stack-up with other states and how Minneapolis-St. Paul compares with major metropolitan areas in taxes and operating expenses.