Minnesota R&D Tax Credits

The State of Minnesota, under 290.068, offers a Credit for Increasing Research Activities, a nonrefundable tax credit for all qualifying R&D activities. The credit calculation mirrors that of the federal R&D tax credit. Taxpayers may claim a credit against the corporate income or franchise tax equal to the sum of:

1. 10% of the first $2 million of the excess (if any) of the "qualified research expenses" for the taxable year over the base amount; and
2. 4% on all of such excess expenses over $2 million.

The credit may be carried forward up to 15 years but never carried back.  To calculate the gross receipts for Minnesota, the average annual gross receipts and aggregate gross receipts must be calculated under Minnesota sales and receipts statute 290.191. Additionally, even if a company has zero gross receipts in Minnesota, they may still claim the credit and carry it forward.

Potential Changes to Minnesota's R&D Calculations

Two different bills were introduced in 2022, SF 2970 and HF 3316. Both bills would provide different methodologies for the tax credit to be calculated, basing calculations on the Alternative Simplified Credit methodology. If one of these bills is passed, taxpayers would only need to substantiate QREs for the current and previous three taxable years. These bills have been tabled in committee, but provide a hint of where Minnesota R&D tax law could go.

Strike will keep Minnesota clients updated about potential R&D tax law changes.

Learn more about Minnesota's current R&D Tax Credit law here.

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R&D Tax Credit Available:‍

Yes

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Eligible Entities:‍

C-Corporations, S-Corporations, LLCs, Partnerships

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Deadline for Tax Filing:‍

Due with Minnesota Tax Return

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Data Required to Compute Credit:‍

Claim Period Federal Qualified R&D Expenses (QREs)

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What Information is needed?‍

Minnesota Sales & Receipts for Prior 4 Years

Federal Form 6765

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Credit Carryforward:‍

15 Years

No Carryback provision

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The R&D tax credit equals:

• 10% of the first $2 million of qualifying expenses over the base amount, and 4% of expenses over $2 million.
• Minnesota does not conform to the federal “Alternative Simplified Method".

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Specific Items to Note:

• The credit is nonrefundable and cannot exceed the tax liability.
• QREs can include contributions to qualified nonprofit organizations that make grants to small, technologically innovative businesses in Minnesota during their early development stages.