Minnesota Economic Development Directory

Minnesota State Incentives

DATA CENTER SALES TAX EXEMPTIONS: Enacted in July 2011, Minnesota created a major tax exemption for data center projects. Qualified data centers will receive a 20-year exemption from sales tax on equipment and energy used in the center (Minnesota state sales tax is 6.875 percent.). To be qualified, the data center must be at least 30,000 square feet of new or substantially renovated space, and represent at least $50 million in construction and equipment costs within 24 months. The incentive takes effect July 1, 2012. Minnesota is also blessed with no personal property or inventory tax. Other benefits in Minnesota are cooler climate to reduce cooling costs, low risk for earthquakes and other natural disasters, a robust fiber network, and reasonably priced and abundant energy.

JOB OPPORTUNITY BUILDING ZONE (JOBZ): Provides local and state tax exemptions to qualified companies that start up or expand in targeted areas of Greater Minnesota. There are 10 job zones comprising more than 29,000 acres in about 325 communities. Each zone includes acres for primarily manufacturing, value-added or high paying service businesses. Benefits are determined by the exact nature of the business expansion, as well as its effective date. JOBZ benefits accrue from the date businesses qualify and continue until December 31, 2015, when the JOBZ program is scheduled to expire. Businesses that startup or expand in a zone or relocate from other states or from elsewhere in Minnesota are eligible for the incentives if they meet certain job and wage goals:

• They must increase employment by a minimum of five jobs or 20 percent (whichever is greater) within the first full year of operations in the zone.

o  They must pay each employee (including benefits not mandated by law) at a level equal to at least 110 percent of the federal poverty level for a family of four.

ANGEL TAX CREDIT: Signed into law on April 1, 2010, it offers incentives to investors or investment funds that put money into startup and emerging companies focused on high technology or new proprietary technology. Funding for years 2012-2014 is set at $12 million per year. To qualify, businesses must meet these general criteria. At minimum they must:

• Be headquartered in Minnesota
• Have a minimum of 51 percent of employees and 51 percent of payroll in Minnesota
• Have fewer than 25 employees
• Pay employees annual wages of at least 175 percent of poverty level
• Pay interns 175 percent of federal minimum wage
• Not have been in operation for more than 10 years
• Not previously have received private equity investments of more than $4 million
• Not have been disqualified from investment under MN Stat. 80 A.50 (b)(3)
• Not have generated more than $4 million in investments that have received an Angel Tax Credit.
• Be certified by DEED before investment is made. The non-refundable certification filing fee is $150

In addition, qualifying businesses must also be engaged in—or committed to engage in—technological innovation in MN. Their primary business activities must include one or more of the following:

• Using proprietary technology to add value to a product, process or service in a qualified high-technology fiel
• Researching or developing a proprietary product, process, or service in a qualified high-technology field
• Researching, developing, or producing a new proprietary technology for use in the fields of: agriculture, tourism, forestry, mining, manufacturing or transportation

STATE SMALL BUSINESS CREDIT INITIATIVE (SSBCI): Uses federal funding to stimulate private-sector lending and improve access to capital for small businesses and manufacturers that are creditworthy but not getting loans they need to expand and create jobs. It allocates up to $15.4 million into four state programs: The Capital Access Program, Emerging Entrepreneurs Fund, Small Business Loan Guarantees and Early Stage Fun

RESEARCH & DEVELOPMENT TAX CREDIT: Individuals involved in partnerships, S-corporations and limited liability companies are allowed to claim the credit against their individual income taxes. This opens up the tax credit to more small and medium-sized businesses. The tax credit for R&D expenditures is10 percent, up to the first $2 million in eligible expenses and 2.5 percent for eligible expenses above $2 million.

MINNESOTA INVESTMENT FUND: Provides grants to help add new workers and retain high-quality jobs on a statewide basis. The focus is on industrial, manufacturing and technology-related industries to increase the local and state tax base and improve economic vitality statewide. Grants are awarded to local units of government (one grant per state fiscal year) who provide loans to assist expanding businesses. Cities, counties, townships and recognized Indian tribal governments are eligible for this fund. All projects must meet minimum criteria for private investment, number of jobs created or retained and wages paid. There is a maximum of $500,000 per grant. At least 50 percent of total project costs must be privately financed through owner equity and other lending sources. Grant terms are for a maximum of 20 years for real estate and a maximum of 10 years for machinery and equipment. Interest rates are negotiated.

SMALL BUSINESS DEVELOPMENT LOAN PROGRAM: Provides loans for business expansions that result in the creation of new jobs. Small business loans up to $5 million are made by the Minnesota Agricultural and Economic Development Board (MAEDB) through the issuance of industrial development bonds. Manufacturing and industrial companies located or intending to locate in Minnesota and meet the federal definition of a small business (generally those with 500 or fewer employees) are eligible.

URBAN INITIATIVE LOAN PROGRAM: Created to support the growth of minority owned and operated businesses and to create jobs in economically distressed areas of the Twin Cities. Grant funds are provided to a network of nonprofit lenders to use for loans to start-up and expanding businesses. Start-up and expansion costs, including normal expenses such as machinery and equipment, inventory and receivables, working capital, new construction, renovation and site acquisition are eligible for the program. Businesses eligible for loans include technologically innovative industries, value-added manufacturing and information industries. Project must demonstrate potential to create jobs for low-income people; be unable to obtain sufficient capital from traditional private lenders; and demonstrate the potential to succeed. Businesses must be located in Minneapolis, St. Paul, Bloomington, Brooklyn Center, Brooklyn Park, Burnsville, Columbia Heights, Coates, Coon Rapids, Fridley, Lauderdale, Lexington, Mendota, Miesville, New Germany, New Brighton, New Hope, Newport, Richfield, Spring Lake Park, South St. Paul and West St. Paul. Micro enterprises, including retail businesses, may apply for up to $25,000. Businesses that are seeking more than $25,000 will be required to find private financing to match the state’s investment. The maximum Urban Initiative investment in any one business is $150,000.

INDIAN BUSINESS LOAN PROGRAM: Supports the development of Indian-owned and operated businesses and promotes economic opportunities for Indian people throughout the state. The Minnesota Chippewa Tribe has authority to use IBLP funds to make loans to businesses owned and operated by an enrolled member of its six participating bands–Bois Forte, Fond du Lac, Grand Portage, Leech Lake, Mille Lacs and White Earth. Applicants must be enrolled members of a federally recognized Minnesota-based band or tribe. Businesses must be wholly owned by an enrolled member and can be located anywhere in the state, although the bulk of the loans are made to businesses on a reservation. Loan proceeds may cover start-up and expansion costs. Loans may not exceed 75 percent of the projects costs or the balance of the funds available to any one tribe. Owners must provide a portion of the financing needed to undertake the project. The amount varies between 5 percent and 10 percent, depending upon the requirements of each band or tribe.

BORDER CITIES ENTERPRISE ZONE PROGRAM: Provides business tax credits (property tax credits, debt financing credit on new construction, sales tax credit on construction equipment and materials, and new or existing employee credits) to qualifying businesses that are the source of investment, development and job creation or retention in the Border-Cities Enterprise Zone cities of Breckenridge, Dilworth, East Grand Forks, Moorhead and Ortonville

SEED CAPITAL INVESTMENT CREDIT PROGRAM: Provides tax incentives for investing in innovative business located in the Minnesota border cities of Breckenridge, Dilworth, East Grand Forks, Moorhead and Ortonville. Investors may receive a 45 percent tax credit on their investment, up to $112,500 per year. The credit is non-refundable and may be carried forward up to four years.

TOURISM BUSINESS SEPTIC TANK REPLACEMENT: Makes low-interest financing available to existing tourism-related businesses that provide overnight lodging and need to replace a failed septic system. Participation loans in cooperation with financial institutions can be made for up to 50 percent of the total cost of the project.

SBIR PROGRAM: Provides federal grants for small companies in the critical startup and development stages, helping them to compete with larger, more established companies. Each year, 11 federal departments and agencies set aside a portion of their research and development funds for award to small business. To be eligible, companies must be at least 51-percent American-owned, independently operated and located in the United States. Other requirements include:

• Perform all work in the United States.
• Be for-profit.
• Be the primary employer of the lead researcher at the time of award. That researcher may not be employed full time by another institution or company.
• Perform the majority of work themselves, rather than through consultants or subcontractors.
• Have 500 employees or fewer.

SMALL BUSINESS TECHNOLOGY TRANSFER PROGRAM (STTR): Provides federal grants to encourage partnerships between businesses with ideas for new technologies and products and the nonprofit R&D institutions that can bring those products to market. Each year, five federal departments and agencies are required by STTR to reserve a portion of their R&D funds for award to small business/nonprofit research institution partnerships. Both small businesses and nonprofit research institutions must meet certain requirements. Small businesses must be American-owned and independently operated, be for-profit and have 500 employees or fewer. The principal researcher on the project need not be employed by small business.

Nonprofit research institutions must be located in the U.S. and must also be a nonprofit college or university, a domestic nonprofit research organization, or a federally funded research-and-development center (FFRDC). Unlike the restrictions placed on participating businesses, there are no limits on the numbers of employees a nonprofit research institution may have.

MINNESOTA JOBS SKILLS PARTERNSHIP PROGRAM: Grants of up to $400,000 are awarded to educational institutions that partner with businesses to develop new-job training or retraining for existing employees. All training projects pair at least one public or private accredited Minnesota educational institution and one business. Funds may be used for training-related costs or educational infrastructure improvements necessary to support businesses located or intending to locate in Minnesota. A cash or in-kind contribution from the contributing business must match program funds on at least a one-to-one ratio.

TAX INCREMENT FINANCING (TIF): Uses the increased property taxes that a new real estate development generates to finance up-front costs of the development. The city, county or development authority uses TIF to pay qualifying costs–land acquisition, site preparation and public infrastructure, for instance–incurred for the project.

TAX ABATEMENT: Cities, counties and school districts may use tax abatement to help finance certain economically beneficial projects. Property taxes are forgiven for a period of time to allow the project to cash flow. Or the taxes are captured for a period of time and an up-front payment is made by the political subdivision to help the project cover start up costs. At least 50 percent of the payroll of the operations of the business that qualify must be for employees engaged in one of the following lines of business or any combination of them: Manufacturing, Agricultural processing, Mining, R&D, Warehousing, Qualified high technology

LOCAL ENERGY IMPROVEMENTS FINANCING PROGRAM: Provides low-interest loans to building owners who want to make their properties more energy-efficient. Open to qualified residential, commercial and industrial property owners in Minnesota, the program is funded through revenue bonds issued by participating local governments. Building owners pay back the loans through a special tax assessment that may not exceed 20 years. The energy improvements can be any permanent change to a building that leads to a net reduction in energy consumption without altering the principal source of energy.

GROWTH ACCELERATION PROGRAM: Provides consulting services to help small manufacturers that employ up to 100 workers become more efficient, more competitive and more likely to thrive and grow.

GAP provides grants of up to $50,000, which are matched dollar-for-dollar by companies. The grants are typically used to analyze and improve business and manufacturing processes.

FOREIGN TRADE ZONES: Commerce sites (industrial sites, buildings) set up in or near U.S. Customs ports of entry where merchandise is considered legally outside U.S. Customs territory. The zones are operated as public utilities by states, port authorities, other political groups or corporations charted by the state. Companies can use foreign trade zones to reduce duty payments, streamline supply chain costs and improve competitive position in domestic and foreign markets.

FEDERAL RURAL DEVELOPMENT FINANCING

• RENEWABLE ENERGY PROGRAM: Loans, loan guarantees and grants are available to help agricultural producers and rural small business purchase renewable energy systems and make energy efficiency improvements. Rural is defined as an area of less than 50,000 in population or its immediately adjacent incorporated communities.

• VALUE-ADDED PRODUCER GRANTS: Help producers expand their customer base by entering into emerging markets for their products or commodities and ensure that a greater portion of the revenues derived from the value-added activity is available to the producer. The maximum allowable grant amount is $100,000 for planning grants and $150,000 for working capital. Grant recipients must provide 1-to-1 matching funds and projects must be completed within 1 year. Independent producers, farmer-owned cooperatives, agricultural producer groups and majority-controlled producer-based groups are eligible to apply. Four categories are considered value-added under this program.

o   Ventures in which agricultural producers add value to their products through changing the physical state or form of the product (processing wheat into flour, corn into ethanol, slaughtering livestock).

o   Producing products in a manner that enhances its value (organic).

o   Physical segregation of an agricultural commodity or product in a manner that results in the enhancement of the value of that product.

o   Any agricultural commodity or product that is used to produce renewable energy on a farm or ranch (methane digesters, wind turbines).

• BUSINESS & INDUSTRY LOAN GUARANTEE PROGRAM: Loan guarantees with an upper limit of $10 million. Some high-priority projects may be guaranteed up to $25 million by the administrator in Washington. Most business purposes are eligible, e.g. building and equipment purchase or development, working capital (no lines of credit); aquaculture; commercial nurseries; tourist and recreation facilities (except golf courses); hotels and motels; community facility-type projects; facilities for lease to private businesses; and housing development sites. Eligible borrowers may generally be an individual, cooperative, corporation, partnership, non-profit corporation, Indian tribes or public body. A minimum of 20 percent tangible balance sheet equity is required on a new business and 10 percent on an existing business.

• INTERMEDIARY RELENDING PROGRAM: Loan provided to an entity (intermediary) to establish a revolving loan fund to re-lend to eligible ultimate recipients (businesses) at reasonable rates and terms. Eligible intermediaries are private non-profit corporations, any state or local government, an Indian tribe or a cooperative. IRP funds can be used to finance business facilities and community development projects in rural areas, innovative projects, land, building construction or repair, equipment, working capital, interest, feasibility studies and fees for professional services. Ultimate recipients must be located in a rural area of fewer than 25,000 in population.

• RURAL ECONOMIC DEVELOPMENT LOAN & GRANT PROGRAM: Provides financing to develop projects that will result in a sustainable increase in economic productivity, job creation and incomes in rural areas. Eligible borrowers (or grantees) of this program are current or prepaid RUS electric and telephone borrowers. Funds are either a zero-interest loan or a grant to the utility, which in turn is re-lent as a zero-interest loan to the eligible business for a specific project. Grant funds must be matched 20 percent up-front by the borrower utility company. Projects may include business start-ups and expansion, community development, incubator projects, medical and training projects and feasibility studies.

• RURAL BUSINESS ENTERPRISE GRANT PROGRAM: Applicants are public bodies, non-profit associations and Indian tribes. The purpose is to assist in financing and developing small and emerging private businesses. The grant cannot be passed through to the business. Funds can be used for a revolving loan program to provide financing to businesses that meet all of the following requirements:

o  50 or fewer new employees
o  Less than $1 million in projected gross revenue
o  Uses new processes
o  Uses technological innovations and commercialization of new products that can be produced in rural areas

• RURAL BUSINESS OPPORTUNITY GRANT PROGRAM: May be used to assist in the economic development of rural areas by providing technical assistance for business development and economic development planning. Grants may be made to public bodies, nonprofit corporations, Indian tribes on federal or state reservations and other federally recognized tribal groups, and cooperatives with members that are primarily rural residents and that conduct activities for the mutual benefit of the members. Applicants must have sufficient financial strength and expertise in activities proposed in the application to ensure accomplishment of the described activities and objectives. Grant requests are limited to $50,000 per state and may be used to:

o  Identify and analyze business opportunities that will use local rural materials or human resources. This includes opportunities in export markets, as well as feasibility and business plan studies.
o  Identify, train and provide technical assistance to existing or prospective rural entrepreneurs and managers.
o  Establish business support centers and otherwise assist in the creation of new rural businesses.
o  Conduct local community or multi-county economic development planning.
o  Establish centers for training, technology and trade that will train rural businesses in the utilization of interactive communications technologies to develop international trade opportunities and markets.
o  Conduct leadership development training of existing or prospective rural entrepreneurs and managers.
o  Pay reasonable fees and charges for professional services necessary to conduct the technical assistance, training or planning functions.