Posted by kdadmin on December 11th, 2013.
In the spirit of the holidays, the State of Minnesota is going to be especially thankful this year to its citizens who make more than $250,000 because it has added a new state income tax bracket Now, these high earners get to pay 9.85% tax instead of the previous 7.85% maximum.
From a taxation perspective, this move, among others, earned Minnesota the WORST STATE IN THE UNION for the tax burden it places upon its individual and corporate citizens, according to SBE’s Business Tax Index 2012 State Rankings. SBE’s 2012 taxation report ranked Minnesota below even “Taxachusettes” and Hawaii. In other words, Minnesota is effectively killing off new business development, and asking its wealthy taxpayers to move. This seems pennywise, pound foolish.
If we can learn anything from Cyrano de Bergerac star, Frenchman Gerard Depardieu it’s that when the tax burden becomes too high, the rich simply move away and the remaining middle class gets stuck with the increased tax bills, loss of jobs, higher unemployment, and drop in property values. Duh. (Gerard recently renounced his French citizenship and became a Russian citizen living in Belgium and effectively reduced his income tax rate down to roughly 15%, from the 40%+ of France.)
Of course, money isn’t everything. Minnesota, especially the Twin Cities often ranks about the top 3 cities in which to live from a quality of life perspective Education levels, summer climate, park systems, theater, art, people, et cetera, are ranked among the best. So, it seems, you get what you pay for. At least, if you make less than $250,000.
But consider this, one of my clients owns a consulting business that could be based anywhere in the country. They have no need of a physical office in Minnesota and while they would prefer to live in Minnesota because they like the culture, they find that it’s not worth the extra 10% they will pay in income taxes. So, instead, they set up residence in one of the seven states that don’t collect an income tax. If Minnesota had been bright and billed their rates at the middle of the pack, at say ~5%, this individual may have stayed. In this situation, Minnesota would be receiving 5% of something versus 10% of nothing. Which one do you think would prevent future potential state financial problems?
For those of you who love Minnesota too much to leave, and don’t mind the onerous tax environment, each November and December we review your tax situation in an effort to mitigate the impact of taxation on your portfolio for the year. We look at your investments, income, charitable contributions, business value, retirement dates, pensions, social security, and tax code changes. We’ll often even reach out to your CPA to try to help make sure you pay as little tax as possible.
HOWEVER, we can’t do any of this unless we can review your tax return from last year (2012 in this case). SO, if you haven’t responded to our request for your tax return this year, please send it in before December 20th.
Until we meet again, Happy Holidays!
p.s. Lest you think that simply spending more time at your vacation home in an income tax free state will save you, be aware that the state of Minnesota and the IRS use a list of 26 points and recent case law to determine if you actually live somewhere else (domicile), or if your legal domicile is in Minnesota. In other words, look before you leap. Or, better yet, call me first.