Minnesota Tax Rates

This post provides an overview of the primary taxes levied at the state level in Minnesota. The information contained here is intended for general reference. For individuals or businesses seeking comprehensive support with tax filings, compliance, or strategic planning, indinero offers expert services. We encourage all who utilize this summary to explore the tailored tax support available through indinero.

Individual Income Tax

Minnesota has one of the highest top marginal rates in the country and utilizes a graduated state individual income tax system with four tax brackets.

  • State Rates (2025): The rates range from a low of 5.35% to a top marginal rate of 9.85%. The income thresholds for these rates are adjusted annually for inflation.
    • An additional 1% tax on net investment income over $1 million took effect in the 2024 tax year, which can result in a maximum effective rate of 10.85% on that portion of income.
  • Retirement Income: Social Security benefits may be partially taxable, depending on the taxpayer’s provisional income, though the state offers significant subtractions to reduce the tax on these and other retirement income sources for low- and moderate-income residents.
  • Credits: The state offers a generous Child Tax Credit (up to $1,750 per child) and a large, refundable Homestead Credit Refund program designed to help offset property taxes for homeowners and renters whose property taxes are high relative to their income (often called a “circuit breaker”).

Sales and Use Tax

Sales tax is a significant source of state revenue, combining a high state rate with varying local additions.

  • State Rate: The general state sales tax rate is 6.875% on the retail sale of tangible personal property and certain specified services. This rate includes a dedicated fraction (0.375%) that funds outdoor heritage, clean water, parks, and arts.
  • Local Taxes: Local jurisdictions (cities and counties) impose additional local sales taxes, which can be general or for specific projects like transportation. The average combined state and local sales tax rate is approximately 8.12%, but the total rate can be as high as 9.875% in certain cities.
  • Exemptions: Key exemptions include groceries (unprepared food for home consumption) and prescription drugs.
  • Use Tax: A state use tax of 6.875% applies to taxable items purchased outside of Minnesota but used, stored, or consumed in the state if Minnesota sales tax was not collected.

Property Tax (Ad Valorem Tax)

Property taxes in Minnesota are administered and collected exclusively at the local level by various taxing bodies (school districts, counties, etc.), and they are generally near the national average effective rate of around 1.04% of a home’s assessed value.

  • Classified System: Minnesota uses a classified property tax system where different property types are assigned different class rates (percentages) of their market value to determine the net tax capacity (the value taxes are applied to).
    • Residential homesteads benefit from a lower class rate and a Homestead Market Value Exclusion (HMVE), which reduces the taxable value of the home.
  • Tax Calculation: The tax is calculated by multiplying the property’s net tax capacity by the local mill rate (set by local budgets).
  • State General Tax: The state imposes a separate minimal State General Tax Levy on certain properties (like commercial/industrial and seasonal recreational properties), which contributes revenue to the state’s general fund.

Corporate Income Tax (Corporate Franchise Tax)

Minnesota imposes a corporate tax that is officially called the Corporate Franchise Tax but functions as a corporate income tax.

  • Tax Rate: The corporate franchise tax rate is a flat 9.8% of the corporation’s Minnesota taxable net income. This is one of the highest flat corporate tax rates in the U.S.
  • Minimum Fee: The state also imposes a minimum fee based on the value of a corporation’s Minnesota property, payroll, and sales. Corporations pay the greater of the 9.8% income tax or the minimum fee.
  • Apportionment: For multi-state corporations, Minnesota uses a single sales factor apportionment method to determine the amount of income subject to the tax.

Unique and Excise Taxes

  • Estate Tax: Minnesota is one of the states that imposes an estate tax. The tax is levied on the estates of residents and nonresidents owning property in the state that exceed a statutory exemption amount (e.g., $3 million for deaths in 2024).
  • Liquor Gross Receipts Tax: In addition to the standard sales tax, an additional 2.5% liquor gross receipts tax applies to the sale of alcoholic beverages.
  • Cannabis Tax: Retail sales of cannabis are subject to a Cannabis Gross Receipts Tax, which is currently set at 15% (effective July 1, 2025), in addition to the standard sales tax.

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.