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Published January 28 2011

North Dakota looks at lowering corporate income tax

It was a dominant theme in Minnesota’s gubernatorial campaign, extending to billboards for defeated candidate Tom Emmer that dotted the interstate with an urgent admonition: “Don’t lose another job to North Dakota.”

One of Emmer’s targets: the state’s corporate income tax rate of 9.8 percent, among the highest in the nation. Slash it, he said, and watch the business climate spring to life.

As it turns out, North Dakota lawmakers may wind up beating Minnesota to the punch. Among the tax cut proposals state lawmakers began considering this week were a handful of proposals to reduce North Da­kota’s corporate income tax, now 6.4 percent. One bill calls for cuts as high as 60 percent.

North Dakota’s business leaders say that while such a move might not be an economic silver bullet, it’s an option worth pursuing.

“If we’ve got the money, let’s do it,” said Andy Peterson, president of the North Dakota Chamber of Commerce.

The 60 percent cut proposal would cost the state about $57 million in tax revenue. The state’s budget surplus is expected to dwarf that figure.

Among the three major factors that drive business costs in a state – taxation, regulation and the legal environment – Peterson said the corporate tax rate is probably the area in which North Dakota has the most room to improve.

From a competitive standpoint, he said, cutting corporate taxes would help the state keep pace with South Dakota, which isn’t shy about advertising the fact that it has no corporate or personal income tax.

“It makes their pencil that much shaper when it comes to attracting businesses,” he said.

Then again, eliminating a tax on corporate earnings is no miracle cure: Nevada, for instance, has no corporate income tax and no state income tax but is struggling with the highest unemployment rate in the nation.

Kevin McKinnon, president of the Greater Fargo Moorhead Economic Development Corp., agreed that cutting the corporate in­come tax could make the state more attractive to businesses. But he cautioned against putting too much stock in a comparison of corporate income tax rates alone.

Some companies may be more concerned about an inventory tax, he said. Others may be concerned with specific provisions: Minnesota, for example, is transitioning to an apportionment formula that cuts taxes on companies that are headquartered in the state but do most of their sales elsewhere, making it a more attractive destination for the corporate offices of national companies.

“There’s a variety of things that in many cases come down to how it affects each company,” he said.

Paul Lucy, director of the Economic Development and Finance Division of the North Dakota Department of Commerce, said the notion of “losing” a business to another state because of tax rates may be overstated. Businesses tend to expand more often than pick up and move outright, he said.

Lower tax rates – corporate or otherwise – would help the state compete, he said. States without a corporate income tax might not always be picked by businesses, he said, “but they certainly get noticed.”

He also said tax certainty can be as important as tax rates. Businesses don’t want to operate in an environment where their tax liability gets caught up in a struggle to balance the state budget, he said.

While Lucy said his office will gladly talk to Minnesota businesses about crossing the Red River, he’s not interested in looting the neighboring state’s economy.

“The stronger the whole upper Midwest is, the stronger we are,” he said.


Readers can reach Forum reporter Marino Eccher at (701) 241-5502