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This month we are continuing our “What’s Happening in Your State?” series, where we provide information about the R&D credit in a different state each month. This month, we are focusing on Minnesota!

What are the requirements to become eligible to the Minnesota R&D Credit ?

To be eligible for the Minnesota R&D credit, you must first have qualified research activities within the state of Minnesota. The qualification requirements closely follow the federal definitions contained within Section 41 of the Internal Revenue Code, however there are some calculation differences.

In general, the credit amount is equal to 10% of qualified research expenses up to a computed base amount of $2,000,000 and 4% for qualified research expenses above $2,000,000. The credit cannot exceed 50% of the business’s research expenditures.

The main differences of the Minnesota requirements from federal, include the 5 following criteria:

  • The Minnesota credit does not recognize the Federal Alternative Simplified Credit (ASC) base methodology when determining the base amount (The Federal ASC base methodology does not require the use of gross receipts in the calculation and instead uses the qualified research expenses for the three prior years in the calculation).
  • Minnesota sales or gross receipts must be used when calculating the Minnesota “base amount.” “Base amount” means base amount as defined in Section 41(c) of the Internal Revenue Code, except that the average annual gross receipts and aggregate gross receipts must be calculated using Minnesota sales or receipts.
  • A company can only use the credit to offset the regular franchise tax or the liability for tax, whichever is less.
  • If the tax credit exceeds the regular franchise tax/liability for tax, the excess must be used by other members if possible. Credits allocated to other members are limited to the regular franchise tax or the liability for tax for each member, whichever is less.  If no combined group member is able to use the credit earned in the tax year it is generated, the earning member may carry over any unused amount up to 15 future years until none remains.
  • The statute of limitations to claim the credits is 3.5 years from the original due date for the year you are amending.

consultants calculating taxes

Which type of entities can apply to the Minnesota R&D Credit ?

One great thing about the Minnesota R&D credits is that it applies to all entity types, whether you’re a C-corporation, S-corporation, LLC, or partnership. The credit can be used to offset the qualified taxpayer’s corporate franchise tax or individual income tax (if pass-through entity).

The Minnesota R&D credits can be extremely beneficial when it comes to putting tax dollars back into your business. Each state has its own complexities, making it important to work with a provider who is familiar with the nuances of the credit calculation to ensure you are maximizing the benefit for your business!

Interested in learning more about how your company may be able to take advantage of the Minnesota R&D credit? Submit your information here!