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Minnesota should ditch its alternative minimum tax for corporations

It is no secret that Minnesota taxes it’s corporations at a higher rate than almost anywhere else in the United States. The state’s top rate of Corporate Income Tax (9.8%) is the third highest in the country. Only Iowa (12%) and Pennsylvania (9.99%) have higher rates.

But, as we wrote in our recent report The State of Minnesota’s Economy: 2017, its isn’t just a question of tax rates, Minnesota’s corporate tax system is also more complex than in many other jurisdictions. The Tax Foundation ranks Minnesota 46th out of the 50 states for its business tax climate. Minnesota imposes a deduction schedule for natural resource depletion on top of the federal one. This which adds another layer of compliance difficulties beyond the federal. It it also one of only eight states to have an Alternative Minimum Tax (AMT) for corporations.

Fortunately, there could be some relief on its way in this legislative session. A bill, 2526, introduced by Senator Ann H. Rest (DFL) will repeal the corporate alternative minimum tax and the corporate minimum fee. As the Minnesota Center for Fiscal Excellence puts it,

With the federal repeal of the AMT and various modifications throughout the Internal Revenue Code, the Minnesota AMT would be even more complicated and burdensome and certainly no picnic for the Department to audit. While waiting on the Department’s revenue estimate for the cost of this proposal, it’s worth noting the last time they published a corporate income tax bulletin (about a decade ago) the corporate AMT constituted about 1% of state corporate income tax collections. Given the current circumstances, that’s not worth retaining.

In short, the state’s separate AMT for corporations is more hassle that its worth. We recommended its repeal in our report and we at the Center wish Senator Rest the best of luck in getting this bill passed.

John Phelan is an economist at Center of the American Experiment. 

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