Minnesota is one of the highest-tax states for businesses and high earners. C corporations pay 9.8%, the top personal rate is 9.85% and the state sales tax is 6.875% before local add-ons. In 2026, employers also started paying premiums for the new Minnesota Paid Leave program. In exchange, Minnesota offers a highly educated workforce, a strong base of Fortune 500 headquarters and reliable public services.
This guide covers Minnesota's business taxes for 2026, with worked examples and comparisons against its neighbors.
Minnesota business taxes at a glance
A C corporation in Minnesota pays a 9.8% franchise tax on profit plus a minimum fee that depends on its Minnesota property, payroll and sales. Pass-through owners pay graduated personal income tax from 5.35% to 9.85%, with the 6.8% rate applying from about $33,000 and the 7.85% rate from about $109,000. Customers pay 6.875% state sales tax plus local taxes. Payroll costs include unemployment insurance and, from 2026, a 0.88% premium for paid family and medical leave. Formation fees are moderate and there is no annual report fee.
Corporate franchise tax
| Item | 2026 |
|---|---|
| Corporate franchise tax rate | 9.8% |
| Minimum fee | $0 to more than $13,000 based on property, payroll and sales |
| Alternative minimum tax | Repealed for tax years after 2013 |
- Apportionment: Single sales factor since 2014.
- Combined reporting: Required for unitary businesses.
- GILTI and foreign income: Minnesota includes a portion of global intangible low-taxed income in its tax base, which is unusual among states.
- Credits: Research and development credit (partly refundable for small businesses), angel investment credit and the Minnesota Investment Fund.
- Returns: Form M4 is due on the 15th day of the fourth month after year-end.
The minimum fee
| Minnesota property, payroll and sales (approx., indexed) | Minimum fee |
|---|---|
| Less than about $1.2 million | $0 |
| About $1.2 million to $2.4 million | About $230 |
| About $2.4 million to $12 million | About $690 |
| About $12 million to $24 million | About $2,300 |
| About $24 million to $48 million | About $4,600 |
| Above about $48 million | About $6,900 to $13,000+ |
Corporations credit the minimum fee only in limited cases; partnerships and S corporations pay it in addition to the owners' income taxes.
Personal income tax and pass-through owners
| Taxable income (single, 2026, approx.) | Rate |
|---|---|
| $0 to $33,310 | 5.35% |
| $33,310 to $109,430 | 6.8% |
| $109,430 to $203,150 | 7.85% |
| Over $203,150 | 9.85% |
- Net investment income tax: Since 2024, Minnesota charges an extra 1% on net investment income above $1 million. Gains from selling a business interest may be included.
- LLC owners, partners and sole proprietors pay these rates on profit.
- S corporation shareholders pay on their share.
- PTE election: Partnerships and S corporations can pay tax at the entity level at 9.85%.
- Nonresident withholding: Pass-through entities must withhold tax for nonresident owners unless they file a composite return.
Sales and use tax
| Component | Rate |
|---|---|
| State sales tax | 6.875% |
| Local taxes | 0.5% to about 2.5% |
| Average combined rate | About 8.14% |
- Clothing and groceries are exempt.
- Services: Minnesota taxes some services, including lawn care, cleaning, pet grooming and parking.
- Retail delivery fee: A 50-cent fee applies to retail deliveries of taxable goods totaling $100 or more since July 2024.
- Remote sellers with more than $100,000 of Minnesota sales must collect. Minnesota removed its 200-transaction test in 2025.
Payroll and property taxes
- Minnesota Paid Leave: Premium of 0.88% of wages from January 1, 2026, with up to half deductible from employee pay. Employers with 30 or fewer employees pay a reduced rate.
- Unemployment insurance: Employers pay on a wage base of more than $40,000 per employee, one of the highest in the country, though rates are moderate.
- Earned sick and safe time: Required since 2024.
- Property tax: Commercial and industrial property is taxed at higher rates than residential property, plus a state general tax on commercial and industrial property.
Forming a business in Minnesota: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $135 by mail ($155 online) | $135 by mail ($155 online) |
| Annual renewal | Free (due December 31) | Free (due December 31) |
| Minimum fee | Based on Minnesota property, payroll and sales | Based on Minnesota property, payroll and sales |
| Registered office | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Minnesota franchise tax at 9.8% | $49,000 |
| Federal tax at 21% on $451,000 | $94,710 |
| Total income tax | $143,710 (28.7%) |
A minimum fee may also apply depending on the size of the business. For a single LLC owner with $150,000 of Minnesota taxable income, state tax is about $10,143. At $75,000 it is about $4,617. An LLC with more than about $1.2 million of property, payroll and sales would also pay the minimum fee.
How Minnesota compares with its neighbors
| State | Corporate rate | Top personal rate | State sales tax |
|---|---|---|---|
| Minnesota | 9.8% | 9.85% | 6.875% |
| Wisconsin | 7.9% | 7.65% | 5% |
| Iowa | 5.5% to 7.1% | 3.8% | 6% |
| North Dakota | 1.41% to 4.31% | 2.5% | 5% |
| South Dakota | None | None | 4.2% |
Minnesota's rates are well above every neighbor's. South Dakota has no corporate or personal income tax, North Dakota's rates are among the lowest in the country, and Iowa has cut its rates sharply since 2023. Businesses near the borders, particularly around Fargo-Moorhead and Sioux Falls, often weigh these differences when deciding where to locate.
Choosing an entity in Minnesota
- LLC or S corporation: Owners pay up to 9.85%. Both pay the minimum fee if they are large enough.
- C corporation: 9.8% at the state level plus 21% federally, about 28.7% combined, one of the highest combined corporate rates in the country.
The gap between corporate and personal rates is small in Minnesota, so the choice usually depends on federal factors, such as the qualified small business stock exclusion and payroll tax savings, rather than state tax.
Who pays the most in Minnesota
High-income owners of profitable pass-through businesses pay the most, because the 9.85% rate starts at about $203,000 for single filers. A business owner selling a company can also face the 1% net investment income tax on top. Mid-sized businesses pay the minimum fee in addition to income taxes, and employers now pay paid leave premiums. Smaller businesses with modest profits and less than $1.2 million of activity pay much less, and many benefit from the partly refundable R&D credit.
Tax planning tips for Minnesota businesses
Budget for paid leave premiums. Decide whether to deduct the employee share, update payroll systems and file quarterly wage detail reports. Employers with equivalent private plans can apply for an exemption.
Claim the R&D credit. Minnesota's research credit is now partly refundable, so even businesses without tax liability may receive cash.
Plan the timing of a business sale. Sales that generate more than $1 million of investment income trigger the extra 1% tax. Installment sales or spreading the sale across years may help.
Consider the PTE election. For profitable pass-through owners, the election makes state tax deductible federally, which can be worth thousands of dollars a year at Minnesota's rates.
Recent changes for 2025 and 2026
- Minnesota Paid Leave premiums and benefits started January 1, 2026.
- Net investment income tax of 1% on income above $1 million continues.
- Remote seller threshold simplified to $100,000 of sales.
- Retail delivery fee on qualifying deliveries.
- Brackets and minimum fee thresholds indexed for inflation.
Is Minnesota a good state for business?
Advantages
- Highly educated, productive workforce
- Many large corporate headquarters and a strong medical technology cluster
- No annual report fee
- Partly refundable research credit
Drawbacks
- 9.8% corporate rate and 9.85% top personal rate
- Minimum fee on top of income taxes
- New paid leave premiums
- Neighbors with much lower taxes
Compliance checklist
- File Articles of Organization or Incorporation with the Secretary of State.
- Register with the Department of Revenue for sales tax, withholding and income tax.
- Register for unemployment insurance and Minnesota Paid Leave if you hire.
- File the free annual renewal by December 31.
- File sales and withholding tax returns on schedule.
- File Form M4, M8 or M3 each year, including the minimum fee.
Compare Minnesota with its neighbors below or estimate your taxes in the United States calculator. See Corporation taxes for more.