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.

  • The credit is 10% of the qualifying expenditures up to $2 million and 2.5% for expenses above $2 million.
  • Only qualifying research expenses incurred in Minnesota can be captured towards the Minnesota research and development tax credit.
  • For Partnerships and S corporations, the credit was refundable from 2010 through 2012.
  • C corporations can continue to carry forward any credits prior to 2010 and after 2012.
  • For tax years beginning after 2012, C corporations may apply the credit to any member of a corporation or business that is included in the combined return.
  • Credit can be carried forward for up to 15 years.

What are the Potential Benefits of this Tax Credit?

There are several benefits to realizing the R&D tax credit. These benefits can include the following:

  • Receive up to 12-16 cents of federal and state R&D tax credits for every qualified dollar
  • Create a dollar-for-dollar reduction in your federal and state income tax liability
  • Increase earnings-per-share
  • Reduce your effective tax rate
  • Improve cash flow
  • Carry forward the credit up to 20 years
  • Perform look back studies to recognize unclaimed credits for open tax years (generally 3 or 4 years)
  • Utilize the federal R&D tax credit against payroll tax (applicable to certain startup companies)

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.

Total QREs
Total QREs
Year 4
Year 3
Year 2
Year 1
Total $5,503,651 $390,726 $5,503,651 $516,329

You can read more about this Minnesota tax credit case study here.