Are R&D Tax Credits Available in Minnesota?
Yes. The state of Minnesota provides the Research Development (R&D) Tax Credit very similar to the federal version, including the definition of qualifying research. Below are some of the differences between the federal and Minnesota research and development tax credits.
- Only qualifying research expenses incurred in Minnesota can be captured towards the Minnesota research and development tax credit.
- The credit is 10% of the first $2 million of the excess of qualifying expenditures over the base amount, and 4% of qualified expenses over the base amount above $2 million.
- For purposes of the Louisiana credit, the base amount follows the federal credit’s definition, and is the product of the (1) fixed-base percentage and (2) the average annual gross receipts for the four taxable years preceding the taxable year for which the credit is being determined, except that the average annual gross receipts must be calculated using the Minnesota sales or receipts.
- Any unused Minnesota research credit can be carried forward for up to 15 years.
- For tax years beginning after 2012, the credit may be claimed against the tax of all members of a unitary group. If the amount of the credit exceeds the taxpayer’s tax liability, the excess credit may be allocated to another member of the unitary group.
Minnesota R&D Tax Credit Case Study
A Minnesota Company develops circuit boards used by their clients. It had never before claimed the R&D credit for the development activities of its software programmers. This project involved a four-year study with a three-year look back.
The Company qualified for the federal R&D Tax Credit of $294,360 and an additional $147,139 of state R&D Tax Credit in Minnesota.
|
FEDERAL
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MINNESOTA
|
|||||
|
Year
|
Total QREs
|
Credit
|
Total QREs
|
Credit
|
||
|
Year 4
|
$1,045,800
|
$104,580
|
$1,045,800
|
$52,290
|
||
|
Year 3
|
832,499
|
83,331
|
832,499
|
41,625
|
||
|
Year 2
|
565,925
|
56,593
|
565,925
|
28,296
|
||
|
Year 1
|
498,563
|
49,856
|
498,563
|
24,928
|
||
| Total | $5,503,651 | $390,726 | $5,503,651 | $516,329 | ||
You can read more about this Minnesota tax credit case study here.
Four-Part Test
Qualified research activities are defined by the four-part test outlined below
Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.