KPMG research concludes that the Twin Cities’ tax structure benefits companies doing R&D.
Maybe the Twin Cities, where corporate taxes are a perennial business lament, isn’t so bad after all.
The announcement earlier this month by Cardiovascular Systems Inc. of a new $30 million headquarters and research facilities in New Brighton didn’t get much attention, amid a lot of expansion in a booming Minnesota economy.
Still, it strongly underscores a report this week by KPMG International, the accounting-and-analysis firm: the Twin Cities has a very competitive “overall tax structure for business,” and it is ranked second for companies that do a lot of research and development, such as medical and technology concerns.
Minneapolis-St. Paul may not be low-tax Ireland, where Medtronic is moving its legal headquarters. But KPMG says the Twin Cities, thanks partly to friendly government tax policies, is a plum place for corporations.
The Twin Cities ranks 17th for “most competitive tax structure” among the 51 highest-ranked international cities, and eighth among the 31 highest-ranked metro areas in the United States. The most favorable corporate-tax structures exist in Cincinnati, Cleveland, Atlanta, Baltimore and Pittsburgh, according to KPMG. (The ranking of 51 metropolitan areas of more than 2 million people includes 20 other cities in Canada, Mexico, the United Kingdom, Europe and Japan.)
Moreover, for firms that invest heavily in research and development, such as medical-products companies, the Twin Cities is considered No. 2 in the United States and eighth in the world.
“Minnesota’s tax credit for R&D activities definitely helps improve the result for the [Twin Cities] in the latest study — especially the fact that Minnesota has made the R&D credit refundable,” said Hartley Powell, KPMG’s chief of global location and expansion services, in a written statement Wednesday to the Star Tribune. “This means companies get cash support for the R&D activities, even if they don’t have any income tax liability. Refundable R&D credits are the rare exception, not the norm, among U.S. states.”
Atlanta, Minneapolis, Cincinnati, Pittsburgh and Detroit were ranked the top five large cities among firms in the R&D sector for most favorable tax structures.
Minnesota Revenue Commissioner Myron Frans, a tax lawyer and former business executive, said he is pleased with the KPMG findings.
“There’s a trade-off and you can search for the lowest-tax [states such as Louisiana], but there aren’t always economic growth and opportunity that go with them,” Frans said. He added that he likes the measure of competitiveness and that KPMG is looking at total business-taxation and how states treat components of taxation, such as how Minnesota’s R&D credit works.
“For [the Twin Cities] to be 17th overall and 8th in the U.S. is pretty darn exciting,” Frans said.
The study reveals that Louisiana has the lowest-cost corporate tax structure among locations in the study’s mid-to-small metro categories. Low corporate taxes, however, are not necessarily linked to high economic growth, economists point out.
Minnesota’s 10 percent nominal corporate tax rate on profits can be half that or less, after companies take advantage of state and local subsidies for everything from research credits to forgivable loans and rebates for job expansion or even using alternative fuels. And, as the Minnesota economy and employment grow at a faster-than-average rate, state officials can crow a bit.
Cardiovascular Systems’ planned 125,000-square-foot office, research and manufacturing facility in New Brighton also includes a commitment to add another 200 Minnesota jobs in several years that will pay an average wage of around $42 an hour.
CEO David Martin said competitive taxes are important but not the only factor. The expansion largely is driven by recent innovation that has spurred growth and a talented workforce.
“Minnesota has a rich talent pool of employees in medical technology with an outstanding work ethic,” Martin said. “That makes Minnesota an attractive location for businesses in our industry.”
The Minnesota Department of Employment and Economic Development awarded Cardiovascular Systems $2 million from the Minnesota Job Creation Fund, if the company meets its hiring and investment goals. The agency also is providing a $750,000 forgivable loan toward the $30 million expansion from its Minnesota Investment Fund.
Although not direct tax benefits, these additional incentives, are designed to help promising Minnesota companies expand at home, and also have been used to lure some out-of-state operations in the highly competitive race for industry and jobs among the states.
Other recent examples include:
• Apogee’s commercial-glass subsidiary, Viracon, chose to build its $30 million plant expansion in Owatonna instead of Georgia. Minnesota state and local governments offered a $4.9 million tax incentive package and spent $1.4 million to help move a highway. Viracon already has a plant in Owatonna with experienced workers.
• Scott County and the city of Shakopee last year approved a $3 million tax incentive package in return for California-based Shutterfly building a $60 million plant that is supposed to employ more than 300 full-time workers.
• Lutsen Mountains, the resort business near Grand Marais, received about $500,000 from the Iron Range Resources and Rehabilitation Board of the roughly $20 million it has used to upgrade and expand its business over the past several years.
Neal St. Anthony • 612-673-7144