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Last Updated: 4/23/2018

Credit for Increasing Research Activities ("R&D Credit")

If your business paid certain research and development (R&D) expenses in Minnesota, you may qualify for a credit for increasing research activities (“R&D credit”).

Do I qualify for this credit?

You may qualify if both of the following are true:

  • You’re a partner in a partnership or shareholder in an S corporation.
  • The partnership or business had qualifying R&D expenses in Minnesota that exceeded its “base amount” (as calculated for the federal R&D credit, but based on Minnesota gross receipts).

What are qualifying R&D expenses?

Qualifying expenses include any of the following:

  • R&D expenses that qualify for the federal R&D credit and are for research done in Minnesota.
  • Contributions to qualified nonprofit organizations that make grants to small, technologically innovative businesses in Minnesota during their early development stages.

How much is this credit?

The credit is equal to 10 percent of qualifying expenses up to $2 million, and 2.5 percent for expenses above that level.

Beginning with tax year 2013, the credit is nonrefundable. You may carry forward up to 15 years any credit amount you are not able to claim in the current year.

For tax years before 2013, the credit is refundable. You may claim the credit even if the business did not make a profit for the year. C corporations may continue to claim any carryover credits from prior years.

For more information, see Minnesota Statute 290.068 and the Minnesota Corporate Franchise Tax webpage on the credit.

How do I claim this credit?

The partnership or S corporation who paid qualified R&D expenses in Minnesota completes Schedule RD, Credit for Increasing Research Activities. You’ll receive your share of the credit on Schedule KPI, Partner’s Share of Income, Credits and Modifications (for partnerships), or Schedule KS, Shareholder’s Share of Income, Credits and Modifications (for S corporations).

To claim the credit on your Minnesota tax return:

  1. Complete Schedule M1C, Other Nonrefundable Credits for tax years 2013 or later. For tax years before 2013, complete Schedule M1B, Business and Investment Credits.
  2. Report the amount of your credit on Form M1, Individual Income Tax.
  3. When filing Form M1, include the schedule you completed in step 1 and a copy of Schedule KPI or Schedule KS.