Medtronic's Irish deal reopens Minnesota tax debate

Gov. Mark Dayton said Monday that the decision by medical device manufacturer Medtronic to acquire the Ireland-based company Covidien is a "good deal" for the people of Minnesota.

When Dayton first learned about the $43 billion deal, he said his main concern was for the 8,000 Medtronic employees in Minnesota. The Democratic governor said company officials assured him that they plan to keep their Minnesota operations and all existing jobs intact, with plans to hire more in the future.

"From the perspective of Minnesota, from the perspective of a major employer here, keeping all the jobs that are here and promising to add over a thousand additional jobs over the next five years. That aspect of it is very good for Minnesota," he said.

But some of Dayton's potential Republican rivals in this year's governor's race say it's anything but. They quickly tried to make the corporate transaction a campaign issue and an indictment of Minnesota's business tax climate.

Dayton, however, said Medtronic officials assured him that the company's decision to move the executive offices was based on federal tax issues, not state taxes. He said Medtronic's tax liability in Minnesota won't change. The governor explained that as a U.S. corporation, Medtronic has to pay federal tax on all its foreign profits, and as an Ireland-based corporation, it won't.

"They maintain that frees up the money that will permit them to make, they've said, $10 billion of additional investments in the United States over the next decade," Dayton said. "So, I'm not a financial expert. I can't assess what the intricacies are of federal and other countries' tax policies. My perspective is Minnesota, and Minnesota taxes are not an issue."

Dayton said he thinks the federal government should take a look at those tax policies. But he said that's the purview of Congress, not the governor.

Still, some of the Republican candidates for governor are placing the blame squarely on Dayton. Businessman Scott Honour said he thinks Dayton is "dangerously out of touch" for not expressing greater concern about the deal.

"What's happening here is you're seeing a company make a decision for tax reasons to move its corporate headquarters out of the state," Honour said. "When you look at our governor's policies on regulations and taxes, we're pushing companies the other way. Instead of creating an environment where companies want to come to Minnesota, we're creating an environment where they want to leave."

Another GOP candidate, former GOP state Rep. Marty Seifert, said he thinks Medtronic made its move for several reasons, including the tax on medical devices that is part of the new federal health care law. However, in a conference call with investors about the acquisition Medtronic's CEO did not mention the medical device tax. Seifert said he' also convinced that Minnesota's tax climate under Dayton was another factor.

"I am running into business owners all the time -- both small medium and large -- and they're telling me we are making decisions based on Minnesota's very anti-competitive tax climate," Seifert said. "He doesn't want to hear that as the governor, but that's the reality, that there are a lot of companies that are making decisions every single day based upon a very uncompetitive tax environment that he has helped create, and now he doesn't want to take responsibility for it."

Asked about the comments, Dayton said it was proof that Seifert "doesn't know what he's talking about."

Later Monday, Dayton and the Department of Employment and Economic Development hailed the expansion plans of a much smaller medical device maker. They announced that Cardiovascular Systems Incorporated is getting $2.75 million in state subsidies to build a $30 million headquarters in New Brighton and to hire 205 new employees within two years.