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Minnesota's corporate tax rate is 9.8%, applicable to the taxable portion of corporate income. In determining taxable income for 2013, Minnesota uses an apportionment formula of 96/2.0/2.0 (%sales/%property/%payroll). However, the state will move to single sales apportionment in 2014, making Minnesota a top location for headquarters, plants and equipment that propel sales. The business tax can be reduced by tax credits such as the:
• Credit for Increasing Research Activities (“R&D credit”). The tax credit for R&D expenditures is 10%, up to the first $2 million in eligible expenses. The credit is 2.5% for eligible expenses above $2 million. Individuals involved in partnerships, S-corporations and limited liability companies are allowed to claim the credit against their individual income taxes.
• Small Business Investment Credit (“Angel Investment Credit”). This credit provides qualified investors in certified small businesses with a refundable income tax credit equal to 25 percent of their investments up to a maximum of $125,000 ($250,000 for married joint filers). The credit was enacted to encourage investment in emerging small businesses.
• Historic Structure Rehabilitation Credit for improvement of historic structures.
Minnesota’s lack of a throwback rule (sales to states without income taxes “thrown back” to the taxing state for apportionment purposes), can reduce net taxable income compared to states that have a throwback rule. The state’s 15 year carryforward period also helps businesses reduce tax liabilities.
Minnesota’s general sales tax rate is 6.875%. Local sales taxes are not imposed in most jurisdictions. The maximum in the metro is 0.9%. A list of local sales taxes can be found at Minnesota Local Sales and Use Taxes.
Business sales tax exemptions include:
• Capital equipment (before September 1, 2014, the tax is refunded for non-manufacturers), raw materials and utilities/fuels used in the industrial production process.
• Equipment, software and electricity for qualified data center operations for 20 years.
Business services that are not taxed include:
• Advertising services
• Custom software
• Construction labor
• Installation labor for exempt capital equipment
• Repair of furniture and fixtures
There is also no sales tax on clothing, pharmaceuticals, or food used for home consumption.
Minnesota exempts personal property like machinery and inventory from the property tax – lowering the effective tax rate for real and personal property. Businesses with high equipment and inventory values, relative to their real estate value, pay a lower effective tax rate in Minnesota than in many other states.
To estimate the property tax for a business property located in a specific city in the Greater MSP region use the Property Tax Lookup Tool.
For more information on available properties in the Greater MSP region visit our Property Search Tool.
Minnesota companies with the most favorable employment histories earned an unemployment insurance base rate of 0.5% in 2013 on an annual taxable wage base of $29,000. The tax rate for new employers in a non-high experience rating industry is 3.52% (includes assessments), with the ability to lower their experience rate in as little as 8 quarters. Further information can be found at Unemployment Insurance Minnesota.
Minnesota employers arrange workers’ compensation coverage with private insurers at a market rate. Minnesota’s pure premium rates for 2012 are down 27 percent from 15 years ago, helping reduce Minnesota’s average premium to just $2.03 per $100 of payroll. Minnesota’s insurance industry is highly competitive, allowing for substantially reduced market-rate premiums. Further market rate information can be found at Minnesota Workers’ Compensation Insurers Association Inc and general information can be found at Minnesota Workers Compensation.
Sources: CCH Group of Wolters Kluwer. Minnesota Department of Revenue. 50-State Property Tax Comparison Study, Minnesota Taxpayers Association. Minnesota Department of Employment and Economic Development, Unemployment Insurance (UI) Tax Rates. 2012 Oregon Worker’s Compensation Premium Rate Rankings Summary, Oregon Department of Consumer and Business Services (DCBS). Minnesota Workers’ Compensation System Report 2010, Minnesota Department of Labor & Industry.
400 Robert Street North, Suite 1600
Saint Paul, MN 55101