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Minnesota ranks 45th on the Tax Foundation’s State Business Tax Climate Index

Today, the Tax Foundation releases its 2020 State Business Tax Climate Index. The bad news is that Minnesota ranks 45th, down two from last year.

The states are ranked on five categories.

The corporate tax component measures impacts of states’ major taxes on business activities, both corporate income and gross receipts taxes. Here, Minnesota ranks 44th for 2020, down two from 2019.

The individual income tax component of the Index measures the impact of state and local taxes that fall on pass-through businesses. We rank 46th here, unchanged from 2019.

The sales tax component measures the impact of both sales and excise taxes, particularly when they fall upon business inputs. In 2019, we ranked 27th; in 2020, we are down one to 28th.

The property tax component measures impacts of real and personal property, inventory, estate, inheritance, and other wealth taxes. There is good news here. In 2019, Minnesota ranked 31st on this measure but in 2020 we are up five notches to 26th.

The unemployment insurance tax component measures the impact of state UI tax attributes, from schedules to charging methods, on businesses. Here, again, we have bad news. In 2019 we ranked 25th. In 2020, we have tumbled nine places to 34th.

Are an unfriendly business tax environment and poor business performance linked?

In our forthcoming annual report on the state of Minnesota’s economy, we find, again, that our state lags national averages on capital per worker, venture capital per worker, new and young businesses as a share of all businesses, and research and development spending as a share of GDP. All of these are vital drivers of economic growth. What accounts for our state’s poor performance on all these measures? Is it Minnesota’s unfriendly business tax climate? Or is it something else? If you think it is something else, I’d ask you: What?

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

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