Study: Minnesota ranks in bottom third for corporate tax costs

Written by Evan Paskach on .

Location Matters study

Minnesota’s business tax costs are higher than two-thirds of the states in the US, according to a new comprehensive report released today by the non-partisan Tax Foundation. The state is ranked 39th and 35th in the two vital categories in the 50 state report, “Location Matters: A Comparative Analysis of State Tax Costs on Business.”

The report creates a measurement of the “bottom-line tax liability a firm would face doing business in each of the fifty states.” The tax differences between companies in various industries are measured and categorized between new and existing companies. In those two categories, Minnesota ranks 39th and 35th, respectively.

"Corporate taxes on the state level rarely treat all comers equally, leading to sometimes dramatic disparities in the cost of doing business," said Tax Foundation president Scott Hodge. "Tax preferences and incentive deals can distort the playing field based on how long a business has been operating, whether it's a manufacturing or retail operation or whether it's moved from another state to set up shop."

The top ranked states for existing companies (mature firms) are led by Wyoming, followed by South Dakota, Georgia, Nevada and Ohio rounding out the top five. Pennsylvania was ranked last among the 50 states, preceded by Hawaii, West Virginia, Kansas and Rhode Island.

The lowest tax cost states for new businesses were Nebraska, Louisiana, Ohio, Wisconsin, and Oklahoma. The highest taxed states for new businesses were similar to the ranking for mature firms with Hawaii, Pennsylvania, Kansas, Colorado, and Maryland rounding out the bottom five.

The report does identify some positive statistics for Minnesota despite its below average ranking. Minnesota ranks sixth for new capital-intensive manufacturing and seventh for mature capital-intensive manufacturing. It also identifies the state’s 14th place rank for mature R&D operations with a tax burden 19 percent below the national average.

The state does have, according to the report, certain policies that hamper the positive trends, including one of the nation’s highest corporate income tax rate of 9.8 percent. Minnesota also ranks 42nd (with 50th being the worst) in new retail establishment and 47th in mature retail establishment, both because of the state’s high corporate tax rate and retail property tax burden.

The Tax Foundation collaborated with KPMG LLP, the US tax and audit advisory firm for the inaugural release of the Location Matters report. The authors and contributors hope the study will serve as a guide for CEOs, legislators, and anyone else making decisions about business climates in each state.

The entire report from the Tax Foundation is available online.

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The Freedom Foundation of Minnesota is an independent, non-profit educational and research organization that actively advocates the principles of individual freedom, personal responsibility, economic freedom, and limited government. 

By focusing on some of the most difficult public policy issues facing Minnesota, we seek to foster greater understanding of the principles of a free society among leaders in government, the media, and the citizenry.