Minnesota R&D Credit Differences to Federal Credit

The Minnesota Credit for Increasing Research Activities (R&D credit) is based on the federal Credit for Increasing Research Activities, but there are some significant requirement and calculation differences, including the following: 

• To qualify for the Minnesota credit, research activities for all claimed "qualified research expenses" (QREs) must be conducted in Minnesota. Qualified research does not include research or expenses ordered from Minnesota or connected to R&D conducted in Minnesota if the research expenses were not conducted in Minnesota.
• For tax years beginning after May 30, 2017, Minnesota sales or “gross receipts” must be used when calculating the Minnesota “base amount”. For tax years beginning before May 31, 2017, federal sales or gross receipts are used when calculating the Minnesota “base amount.”
• Expenditures funded through Innovation Grants from the Launch Minnesota program cannot be used to claim the Minnesota credit. (Go to Launch Minnesota website.)
• Minnesota does not conform to the federal “alternative simplified method” when determining the base amount.
• The credit may be carried over for a period up to 15 years, but it cannot be carried back.
• A taxpayer with Minnesota QREs and zero Minnesota gross receipts may still claim the Minnesota credit.
• Unlike the federal credit, which may not be allocated, excess Minnesota credits may be allocated to other members of the combined group. The credit must first be used by the earning member to the amount of their tax liability, then must  be used by other members to the amount of their tax liabilities. See R&D Credit Allocation for more information.
• The credit was refundable in Minnesota for tax years 2010-2012.

For more information on the R&D credit, see Section 41 of the Internal Revenue Code and Minnesota Statute 290.068.