(The Center Square) – Minnesota ranks 32nd in the property tax component of the Tax Foundation’s State Business Tax Climate Index. The property tax component assesses state and local taxes on real and personal property, net worth and asset transfers.
“Minnesota continues to levy a burdensome and economically distortive estate tax, hurting the state’s tax competitiveness,” Tax Foundation Senior Policy Analyst Katherine Loughead told The Center Square in an emailed statement Tuesday.
The state’s property tax system assigns different class rates to different types of property, generally providing preferential treatment to residential properties and shifting more of the burden to commercial properties, she said.
“Despite this, Minnesota has an above-average effective property tax rate on owner-occupied housing and above-average property tax collections per capita, hurting the state’s score on the property tax component of the Index,” she said.
Minnesota fares more poorly in this category compared with most other states in the Midwest. Indiana has the best business tax climate in terms of property taxes. Ohio ranks sixth. Missouri is eighth, and North Dakota is 10th. Still, The North Star State beat Iowa (39th), Nebraska (40th) and Illinois (48th).
State and local property taxes are among the largest tax burdens for business across the nation, the report said.
“Although taxes on real property tend to be unpopular with the public, a well-structured real property tax generally conforms to the benefit principle (the idea in public finance that taxes paid should relate to benefits received) and is more transparent than most other taxes,” the report said.
Taxes on intangible property, wealth and asset transfers are harmful, however, the report said.
“States that levy such taxes – including capital stock taxes, inventory and intangible property taxes, and estate, inheritance, gift, and real estate transfer taxes – are less economically attractive, as they create disincentives for investment and encourage businesses to make choices based on the tax code that they would not make otherwise,” the report said. “Businesses with valuable trademarks may seek to avoid headquartering in states with intangible property taxes, and shipping and distribution networks might be shaped by the presence or absence of inventory taxes.”
The 2022 State Business Tax Climate Index report was released in December 2021. The property tax component accounts for about an eighth of the index’s score.