Governor Pawlenty’s Budget Proposal
By: KEVIN P. GOODNO, BECKY S. GIRVAN & MELISSA J. RAHN
January 28, 2009
Governor Pawlenty released his budget proposal on Tuesday, January 27, 2009. Below is a summary of some recommended tax initiatives that were included in his proposal. Click here for more information.
Reduction in Business Franchise Tax Rate
The Governor recommends reducing the business tax rate of 9.8% to 4.8% over a period of six years. This would reduce Minnesota’s business franchise tax rate from one of the highest in the nation to a more competitive rate. A reduction in rates will help encourage businesses to grow and invest in Minnesota.
Reinvestment Tax Credit
To encourage job growth and new investments in Minnesota businesses, the Governor recommends the creation of a new refundable tax credit would provide incentives for businesses that invest in their businesses quickly. The credit will be capped at a total of $50 million. The refundable credit will be targeted to small business owners for qualifying business investments. The qualifying investments would include various business investments such as those eligible for Section 179 expensing under the federal tax code (i.e. machinery, equipment, furniture, certain structures, and other tangible personal property). The credit would be available to businesses in FY 2010 for certain qualifying investments that occur in 2009.
Angel and Early-Stage Capital
The Governor recommends providing $50 million in tax incentives for investments in small, emerging businesses, stimulating availability of early-stage capital for these job-creating businesses. The tax costs would be spread over four fiscal years between FY 2012 and FY 2015. Half of these investments would be targeted to “green” investments that support the state’s 25x25 renewable energy standards.
The Governor recommends the creation of a “GreenJOBZ” initiative patterned after the original JOBZ program, but with three major changes:
- GreenJOBZ would be exclusively for companies that create renewable energy, represent manufacturing equipment or services used in renewable energy, or that create a product or service that lessens energy use or emissions.
- Companies would receive benefits for twelve years for all agreements signed by the end of 2015.
- Projects could be anywhere in Minnesota, including the metro area.
Capital Equipment Upfront Exemption
The Governor recommends changing the current sales tax refund for capital equipment to an upfront sales tax exemption at the time of purchase effective January 1, 2010. This will help businesses invest in capital equipment in Minnesota by removing this burdensome current law refund provision. The refund system is a burden both for businesses and for the state to administer. This will lessen the cost of these purchases by reducing the upfront costs, which can cause cash flow concerns particularly for small businesses.
Section 179 Business Expensing
The Governor recommends fully adopting the current federal tax provisions relating to federal tax law Section 179 business expensing of qualifying property assets for purposes of individual and corporate franchise income tax. The proposal would allow the full federal expensing of qualifying business assets purchased in 2009 and 2010. The ability to expense equipment purchases will encourage small businesses to invest in upgrading or expanding their operations in Minnesota by reducing their costs. Conformity with the federal law will also simplify the compliance costs both for businesses and the Department of Revenue.
Capital Gains Exemption
To encourage long-term investments and help job growth, the Governor recommends a new capital gains exemption. Fifty percent of the capital gains from qualifying investments in Minnesota small businesses will be exempt from taxation. The exemption will be available for qualifying investments starting in 2009 and will require a five year holding period.