×

Why Minnesota policymakers revamped biz taxes

Editor's note: Minnesota ranked No. 6 on our list of Top States for Business. Despite the high ranking, some critics see problems in the North Star State. Among them is Dirk Bak. Here's what he says:

I am proud to call Minnesota my home and am blessed to lead one of the state's successful family businesses. But Minnesota is becoming an increasingly inhospitable state for families and businesses. Minnesota has the third-highest corporate income tax rate in the nation, a flat rate of 9.8 percent. And the new top-tier personal income tax rate of 9.85 percent is the nation's fourth highest.

Dirk Bak
Source: SDQ Ltd.
Dirk Bak

Also hindering business growth in Minnesota: a new minimum wage mandate that will raise the state's minimum wage in phases until it reaches $9.50 by 2016. The minimum wage will also be indexed to inflation for the first time, and there is no "tip credit" for employers of tipped workers. Even Gov. Mark Dayton, who signed the minimum wage hike into law, now acknowledges that it hurts restaurant owners, including his own sons.

Read MoreState winners and losers in the jobs war

Public policy has consequences, as any Minnesotan who reads the business section of their local newspaper can tell you.

In late 2013, Minnesota lost grocery retailer (and Fortune 500 company) Nash Finch Co. when it moved its headquarters to Michigan and merged with Spartan. The company picked Michigan "due to it being centrally located to the merged entities operations, the positive business climate taking hold in Michigan, including a more favorable tax environment."

In early 2014, after more than 50 years of business operations in Minnesota, German prosthetic manufacturer Ottobock notified employees that it was "closing its Minnesota operations and shifting hundreds of headquarters jobs to Utah and Texas." Approximately 200 jobs in Minnesota were cut or relocated to Utah, Texas and Kentucky. The state of Utah offered Ottobock $392,000 in tax incentives and benefits, though simply leaving Minnesota is in itself a tax benefit.

Pentair, which maintains all of its primary operations in Golden Valley, Minn., recently approved a plan to reincorporate in Ireland, citing Ireland's regulatory system and "internationally competitive tax system."

Read MorePentair to relocate to Ireland for tax advantages

And in a major blow to Minnesota's business reputation, medical device manufacturer Medtronic, an iconic Minnesota company that was founded in a Minneapolis garage 65 years ago, is moving its headquarters to Ireland in a so-called "tax inversion" deal. While Medtronic and Pentair say the move will have little effect on their Minnesota workforce, it is an indication that even companies that remain in state have a decidedly negative view of Minnesota's tax competitiveness.

Meanwhile, in the rare occurrence that a company decides to move to Minnesota from other states, it is often the result of substantial tax breaks or other government incentives.

For example, trucking company Valley Cartage recently moved its headquarters across the state line from Wisconsin, creating an estimated 50 jobs in the process.

While this is certainly welcome news, the details of the deal that brought the company to Minnesota are revealing, and make clear how Minnesota's business climate and tax code discourage business growth. As Twin Cities Business put it, "But there was that little matter of higher taxes, one of the many financial barriers to a move." In the end, the state of Minnesota gave the company a $900,000 incentive to move, including $500,000 forgivable loan from the Minnesota Investment Fund and $400,000 in tax credits from the Job Skills Partnership Program. Additionally, a Minnesota city and county offered $40,000 in additional tax abatements.

A silver lining

If there is a silver lining to Minnesota's current business and policy climate, it's that some policymakers are beginning to hear the message from employers in the state. During this year's legislative session, the legislature and governor were forced to repeal three new business sales taxes just one year after adopting them, following widespread condemnation from business leaders, economists and the general public.

None of which is to say that Minnesota is beyond repair. The state has many of the traits that employers often seek: a highly educated workforce, abundant natural resources and a vibrant culture. We also are home to 19 Fortune 500 companies, at least for now. And despite the challenges posed by the Affordable Care Act, Minnesota remains home to a vibrant med tech industry, for now.

But Minnesota's cold weather and deteriorating business climate are inhospitable.The former is unfortunately here to stay, hopefully the latter is not.

—By Dirk Bak, president of SDQ Janitorial

CNBC and YPO (Young Presidents' Organization) have an exclusive editorial partnership . It consists of regional chief executive networks in the Americas, EMEA and Asia-Pacific. These networks are made up of a sample of YPO's unrivaled global network of 20,000 top executives from 120 countries who are on the front lines of the economy. The opinions of Chief Executive Network members are solely their own and do not reflect the opinions of YPO as a whole or CNBC.