Business owners invest in Minnesota’s future every day. They invest in their employees and their communities. They invest in their business needs, including equipment and workforce, to grow, oftentimes before company profit is a guarantee. These investments lay the foundation for small businesses to grow and create opportunities across the state and for family farms to continue their legacies. All of this helps Minnesota compete on a global stage to grow Minnesota’s economy and retain and create jobs.
We share their commitment to investing in Minnesota’s future and call on legislators to do the same by aligning Minnesota’s income tax with the federal rules to encourage greater business investment in Minnesota.
Section 179 of the federal tax code dictates when businesses can deduct the cost of purchasing certain equipment. Major federal tax reform was enacted in 2017. This broadened the tax base by eliminating a large number of deductions and allowed more business expensing to encourage investment and boost economic growth.
In 2019, Minnesota conformed to numerous elements of federal law but did not adopt many of the expensing provisions, including Section 179. As a result, Minnesota only allows for a fraction of investments to be immediately expensed, thus putting local small businesses and farmers at a disadvantage. On top of that, Minnesota made some of the business tax changes retroactive, hitting many businesses and farmers with unexpected tax bills. The cumulative impact is extended debt and less money to invest in operations.
These tax increases come as Minnesota is forecasting budget surpluses of more than $1 billion and as many businesses and farmers are hit hard from bad weather, crop losses, and tariff issues.
Aligning state and federal tax codes for Section 179 expensing would help farmers save on equipment. Consider the farm in northern Minnesota that traded in a planter in favor of more sophisticated technologies, including temperature and moisture sensors and GPS. This equipment improves processes and frees up funds to be invested in the future security of the business.
Aligning Minnesota’s tax code would improve productivity for small businesses. Consider the 18,000-plus trucking companies across the state. Trucking is a capital-intensive business with a lot of wear and tear, requiring tractors to be turned over every three to five years at a cost of $150,000 each. Or think about the 8,300 manufacturers employing more than 300,000 Minnesotans which need to upgrade their equipment. These investments help improve productivity at a time of a critical workforce shortage, allow manufacturers to invest in operating expenses and workers, and give companies competitive advantage by improving their customer experiences.
Aligning state and federal tax codes also makes Minnesota more competitive by encouraging investment. All of this productivity and efficiency and growth makes Minnesota a better place to do business. It makes us a more attractive place for businesses to expand operations or relocate. It helps strengthen Minnesota’s presence in the global marketplace. Growing our economy is critical to maintaining our great quality of life.
Consider the costs of not conforming to federal law. A manufacturer, trucker, or farmer in a border community may pay twice as much in Minnesota income taxes compared with federal taxes and much higher than a counterpart only a few miles across the border in the year the much-needed equipment was purchased.
Let’s fix this. Let’s invest in Minnesota’s future. Legislators have the opportunity this session to join the majority of other states that align with federal Section 179 provisions — a measure that had bipartisan support at the Legislature last year.
As members of the Invest in Minnesota coalition, we stand with family farms and small businesses who want nothing more than to invest in the future of their businesses and employees.
Doug Loon is president of the Minnesota Chamber of Commerce in St. Paul. Tamara Nelsen is executive director of AgriGrowth in St. Paul. John Hausladen of Brooklyn Center, Minnesota, is president and CEO of the Minnesota Trucking Association. And Kevin Paap of Eagan, Minnesota, is president of the Minnesota Farm Bureau. The four writers are all members of the Invest in Minnesota coalition, a group of more than 70 organizations statewide. (Learn more about the coalition at mnchamber.com/section179.)