Minnesota is a state in the Upper Midwest and northern regions of the United States. Minnesota is the 12th largest state in area and the 22nd most populous state, where 60% of its residents live in the Minneapolis-Saint Paul metropolitan area (known as the “Twin Cities”). This area is the center of transportation, business, industry, education, and government, while being home to an internationally known arts community. The remainder of the state consists of western prairies now given over to intensive agriculture; deciduous forests in the southeast, now partially cleared, farmed, and settled; and the less populated North Woods, used for mining, forestry and recreation.
Minnesota’s first state park, Itasca State Park, was established in 1891, and is the source of the Mississippi River. Today, Minnesota has 72 state parks and recreation areas, 58 state forests covering 4 million acres and numerous state wildlife preserves. The Mississippi National River and Recreation area is a 72-mile-long corridor along the Mississippi River through the Minneapolis-St. Paul Metropolitan Area connecting a variety of historic, cultural, and geologic interest.
Business Climate
Minnesota’s earliest industries were fur trading and agriculture. The city of Minneapolis grew around the flour mills powered by St. Anthony Falls. Although less than one percent of the population is now employed in the agricultural sector, it remains a major part of the state’s economy. The state is the largest producer of sugar beets, sweet corn, and green peas for processing, and farm-raised turkeys. The state is also a large producer of soybeans.
Forestry remains strong, including logging, pulpwood processing and paper production, and forest products manufacturing. Minnesota was famous for its soft-ore mines, which produced a significant portion of the world’s iron ore for over a century. Although the high-grade ore is now depleted, taconite mining continues, using processes developed locally to save the industry. The mining boom created the port of Duluth which continues to be important for shipping ore, coal and agricultural products.
The manufacturing sector now includes technology and biomedical firms, in addition to the older food processors and heavy industry. The nation’s first indoor shopping mall was Edina’s Southdale Center, and its largest is Bloomington’s Mall of America.
Tax Climate
The top individual income tax rate is 9.85% and the top corporate income tax rate is 9.8%.
Apportionment: Since tax year 2014, Minnesota has apportioned income using “single sales” apportionment—i.e., the percentage that Minnesota sales comprise of total sales of the corporation is multiplied by total income to determine Minnesota-source income. Sales are defined on a destination basis; that is, the location of the buyer generally determines whether the sale is a Minnesota sale. Prior to tax year 2014, Minnesota like most states used three-factor apportionment, based on combination of the Minnesota percentage of property, payroll, and sales. Since the early 1950s, Minnesota has either allowed or mandated weighting sales more heavily before adopting single sales apportionment.
Minnesota uses the market based method for sourcing of services and intangible property.
Sales Tax Structure
Minnesota has enacted economic nexus legislation in the wake of the Wayfair decision. Remote sellers are required to collect and remit MN sales tax if they have 10 or more retail sales totaling more than $100,000 or have 100 or more retail sales. This legislation became effective on October 1, 2018.
The state sales tax rate is 6.875%, which ranks 6th in the nation.
Minnesota is moderate in its approach to the taxation of technology products for sales tax purposes. Digital books, digital audio works and digital audio visual works are taxable. Meanwhile, digital magazines and newspapers are exempt from taxation. Prewritten computer software that is electronically downloaded is taxable while custom computer software that is electronically downloaded is exempt. Lastly, all cloud services are exempt from taxation. How products are produced, sold and delivered is critical to determining their tax status.
Many states have annual sales tax holidays, during which certain items the state wants to promote the purchase of (like school supplies, emergency preparedness supplies, or energy efficient appliances) can be purchased sales tax free. Minnesota, however, does not currently have any scheduled sales tax holidays.
Random Facts
- Only in the Metrodome has there been a Super Bowl, a World Series and a NCAA Final Four Basketball Championship.
- The Mall of America in Bloomington is over 9.5 million square feet in size. It is the size of 78 football fields.
- Northwest Airlines, based out of Twin Cities, was the first major airline to ban smoking on international flights.
- Tonka Trucks were developed and are continued to be manufactured in Minnetonka.
- Candy maker Frank C. Mars of Minnesota introduced the Milky Way candy bar in 1923.
Our team at Miles Consulting Group is available to discuss the specifics of your state tax situation, whether in Minnesota or other states, we can help you navigate the complex tax structures arising from your multistate operations. Call us to help you achieve the best tax efficiencies.
