Minnesota R&D Tax Credit Summary

Companies that engage in certain research and development (R&D) activities in Minnesota may qualify for the Credit for Increasing Research Activities. The Minnesota R&D Tax Credit is very similar to the federal version including the definition of qualifying research.

Below are some of the differences between the federal and Minnesota research credits.

  • Pursuant to § 290.068 Credit For Increasing Research Activities, the Minnesota R&D tax credit for the taxable year is equal to: 10% of the first $2,000,000  of the excess (if any) of Minnesota qualified research expenses for the taxable year, over the base amount; and 4% on all of such excess expenses over $2,000,000.  

    • "Base amount" means base amount as defined in section 41(c) of the Internal Revenue Code, except that the average annual gross receipts and aggregate gross receipts must be calculated using Minnesota sales or receipts under section 290.191 and the definitions contained in paragraphs (a) and (b) shall apply.

  • Qualifying research expenses include

    • qualified research expenses and basic research payments as defined in section 41(b) and (e) of the Internal Revenue Code, except it does NOT include expenses incurred for qualified research or basic research conducted outside the state of Minnesota pursuant to section 41(d) and (e) of the Internal Revenue Code. To qualify for the R&D credit, “Qualified Research” activities must be conducted (actually performed) in Minnesota;  

    • contributions to a nonprofit corporation established and operated pursuant to the provisions of chapter 317A for the purpose of promoting the establishment and expansion of business in this state, provided the contributions are invested by the nonprofit corporation for the purpose of providing funds for small, technologically innovative enterprises in Minnesota during the early stages of their development.

  • Minnesota does not conform to the federal “Alternative Simplified Method.​

  • The credit may be carried over for a period up to 15 years, but it cannot be carried backwards.

  • The definition of “gross receipts” differs. Minnesota sales or gross receipts must be used when calculating the Minnesota “base amount.”

  • A taxpayer with Minnesota QREs and zero Minnesota gross receipts may still claim the Minnesota credit.

  • The credit was refundable in Minnesota for tax years 2010-2012.

Eligible Entities: C-Corporation, S-Corporations,, LLCs, Partnerships

  • Partnerships and S corporations: 

    • In the case of partnerships the credit shall be allocated in the same manner provided by section 41(f)(2) of the Internal Revenue Code.

    • For shareholders in S corporations the credit must be allocated in the same manner as provided by section 1366(a) of the Internal Revenue Code.

Deadline for Tax Filing: Due with Minnesota Tax Return

Data Required to Compute Credit:

  • Claim Period Qualified R&D Expenses (QREs)

  • Minnesota Gross Receipts for Prior 4 Years

  • Adjustments (acquisitions and dispositions): If a taxpayer acquires or disposes of the major portion of a trade or business or the major portion of a separate unit of a trade or business in a transaction with another taxpayer, the taxpayer's qualified research expenses and base amount are adjusted in the same manner provided by section 41(f)(3) of the Internal Revenue Code.

Credit Carryforward: May carry forward up to 15 years any credit amount you are not able to claim against Minnesota liability for tax in the current year but it cannot be carried backwards. 

  • The entire amount of the excess unused credit for the taxable year shall be carried first to the earliest of the taxable years to which the credit may be carried and then to each successive year to which the credit may be carried.

  • "Liability for tax" means the sum of the tax imposed under section 290.06, subdivisions 1 and 2c, for the taxable year reduced by the sum of the nonrefundable credits allowed under this chapter, on all of the entities required to be included on the combined report of the unitary business.

Refundable/Transferable Tax Credit: No. Effective beginning the tax year 2013, the R&D Tax Credit is nonrefundable.  

  • Although Minnesota’s research tax credit no longer offers refundability, the credit was refundable from 2010 to 2012. Legislative leadership intended refundability as a temporary provision to stimulate the economy.

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