Reminder: Minnesota Increased its R&D Tax Credit Rate

For tax year 2017 and forward, companies spending significant research dollars in Minnesota can now claim larger tax credits. For each incremental dollar of R&D expenses over $2 million, the credit was increased from 2.5 percent to 4 percent. However, for a company’s first $2 million in incremental spending, the credit remains a lucrative 10 percent. While smaller companies may not benefit from the latest statute change, the 10 percent credit on the first $2 million is still more generous than the federal credit.

The nonrefundable state credit follows similar definitions as the federal R&D credit for qualified research expenses and qualified research activities but only for Minnesota based research. C Corps and passthrough entities (except sole proprietorships) can claim the credit, and prior year credits can be carried forward up to 15 years. Companies with Minnesota qualified research expenses and no Minnesota gross receipts are also eligible to claim the state credit.

Identifying and tracking Minnesota research and related expenses can provide substantial benefits. For further details, see statute 290.9725 (“https://www.revisor.mn.gov/statutes/cite/290.9725).