State R&D Credit News – New Refundable Minnesota Research Credit

On April 1, 2010, Minnesota Governor Tim Pawlenty signed legislation expanding the research credit for qualified R&D activities in Minnesota. For tax years beginning after December 31, 2009, the Minnesota research tax credit provides the following benefits:

  • The credit is equal to 10 percent on the first $2 million of expenses over a base amount. The R&D tax credit is reduced to 2.5 percent on expenses in excess of $2 million over the base amount.
  • The tax credit is refundable for tax years beginning after December 31, 2009. Research tax credit amounts carried over from earlier years are not refundable. An ordering rule is established to provide that current year tax credits must be utilized before prior year credit carryovers can be utilized.
  • Partners in a partnership and shareholders in an S corporation will now be allowed to claim the R&D credit, in addition to C corporations.

The computation of the credit does not include research conducted outside of Minnesota. The computation requires that a business have the appropriate documentation for the base period, which can stretch as far back as 1984. The documentation should support gross receipts and qualified research expenses for the base period.

Prior to the amendments contained in this act, Minnesota offered a tax credit of five percent of the first $2 million of qualified research expenses in Minnesota and a 2.5 percent tax credit on the remainder of the Minnesota qualified research expenses over a base amount and the credit was only available to C corporations.

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