SF1636

This bill (S.F. No. 1636) proposes an amendment to Minnesota's corporate franchise tax policy by establishing a reduced tax rate for corporations that meet specific pay equity criteria.

Key Provisions:

1. Reduced Corporate Tax Rate:

   • Eligible corporations will be subject to a franchise tax rate of 5% instead of the standard rate.
     

2. Eligibility Criteria (Pay Ratio Requirement):

   • A corporation qualifies for the reduced tax rate if its pay ratio—defined as the ratio of the average hourly compensation of its five highest-paid executives to the lowest-paid five percent of workers (including hourly employees, salaried employees, and contractors)—does not exceed 15 to 1.
     

3. Calculating Compensation:

   • Executive hourly compensation: Includes wages, benefits, and other noncash compensation paid to executives, divided by 52 weeks and 40 hours per week.
     
   • Employee and contractor compensation: Similar calculations are applied based on annual compensation divided into an hourly wage format.
     

Purpose and Impact:

The bill aims to incentivize pay equity by rewarding corporations that maintain a low income disparity between executives and lower-paid workers. If enacted, it could encourage businesses to increase wages for lower-paid employees or limit executive compensation growth to qualify for tax savings.