Research and Development Tax Credit

R&D Tax Credit Overview
Minnesota's new-and-improved research and development tax credit doubles the size of the credit and also expands the credit to include more business entities.

The tax credit for R&D expenditures is 10 percent, up to the first $2 million in eligible expenses. The credit is 2.5 percent for eligible expenses above $2 million.

Individuals involved in partnerships, S-corporations and limited liability companies are allowed to claim the credit against their individual income taxes. This opens up the tax credit to more small and medium-sized businesses.

How to Claim the R&D Credit
Minnesota’s R&D credits are refundable, which means if the tax credits exceed the tax liability, the state will issue a refund payment. Businesses do not need income tax liability or revenue to claim the credit, as long as they have qualified research and development expenditures (as defined in Section 41(d) of the Federal Internal Revenue Code).

If a partnership or S-corporation paid qualified research and development expenses in Minnesota and qualifies for the increasing research activities credit, the entity will complete Schedule RD to determine the credit amount.

However, the entity cannot claim the credit and must pass the credit through to its partners or shareholders. If applicable, a partnership will report the partner’s distributive share of the credit on the Schedule KPI and an S-corporation will report the shareholder’s pro rata share of the credit on the Schedule KS.

To claim the credit, the partner or shareholder must complete Schedule M1B, Business and Investment Credits, and include Schedule M1B and Schedule KPI or KS when filing his or her Minnesota income tax return.

For More Information
Contact the Minnesota Department of Revenue at 651-556-3075 or email businessincome.tax@state.mn.us.