State's business tax climate improving
A new report from an outfit called the Council on State Taxation landed on my desk this week, and it has some positive news for those, like me, who are concerned about the costs of doing business in Minnesota.
Their latest annual report comparing state taxation shows that Minnesota's business taxes are the 15th lowest in the nation. And, yes, you read that right.
The Council on State Taxation is an association of 600 corporate tax attorneys representing businesses that do extensive interstate and international operations. The group tallies all state and local taxes imposed on businesses each year and measures taxes paid as a portion of private business activity in each state. A full copy of the report can be found at www.cost.org.
What makes the report interesting is that they compared actual collections of tax dollars from businesses, not just the rates set in statute. It also factors in other variables, such as property taxes, unemployment taxes, license fees, individual income taxes collected on business income, and so forth. Using total collections also provides a look at the effect of deductions and credits on the total tax burden.
In this light, even though Minnesota has one of the highest corporate tax rates -- 9.8 percent -- our state's greater array of deductions and credits can lower business tax bills by a considerable amount.
The list of deductions is growing. This year, the Legislature and governor enacted a jobs bill that included tax credits for new and existing businesses, as well as a capital investment bill and an economic development bill that, combined, are expected to create more than 30,000 new Minnesota jobs.
To me, the report's findings are good news. When joined by the fact that Minnesota has a lower unemployment rate than the national average, it demonstrates that some of the policy decisions being made are providing some benefit. But the report also raises some issues.
While Minnesota's overall business tax burden may be below the national average, businesses in western Minnesota have to deal with the fact that the two states with the lowest business tax burden are in North and South Dakota. And while targeting tax credits and deductions can achieve some policy goals in terms of promoting certain types of business activity or stimulating job creation, it remains a fact that the base corporate income tax rate is among the highest in the nation. It may be worth looking at ways of trading off certain deductions and credits in the interest of lowering the overall tax rate.
In other words, these findings are encouraging, but we can't afford to take its findings at face value and use them as an excuse for inaction on the business tax front. Helping Minnesota's businesses stay competitive is an ongoing process that will need to be revisited every year.