Can Companies Claim
R&D Tax Credits in Minnesota?
Yes. Minnesota offers an R&D Tax Credit similar to the federal credit, including the definition of qualifying research, with some state-specific differences.
Key Features of the Minnesota Credit
Only research expenses incurred in Minnesota qualify.
Unused credits can be carried forward up to 15 years.
The base amount is calculated using Minnesota sales or receipts, following the federal definition.
Credit equals 10% of the first $2 million of qualifying expenditures above the base amount, and 4% of expenses over $2 million
For tax years after 2012, the credit can be claimed by all members of a unitary group, with excess credit allocated to other members if needed.
Minnesota R&D Tax Credit Case Study
A Minnesota-based company developing circuit boards claimed R&D credits for the first time for software development projects spanning four years.
The company qualified for $294,360 in federal R&D credits and $147,139 in Minnesota state credits.
Year | Total QREs | Credit | Total QREs | Credit |
|---|---|---|---|---|
2024 | 1,045,800 | 104,580 | 1,045,800 | 52,290 |
2023 | 832,499 | 83,331 | 832,499 | 41,625 |
2022 | 565,925 | 56,593 | 565,925 | 28,296 |
2021 | 498,563 | 49,856 | 498,563 | 24,928 |
Total | 2,942,787 | 294,360 | 2,942,787 | 147,139 |
Federal R&D Tax Credit Summary
| Year | Total QREs | Federal Credit |
|---|---|---|
| 2024 | $1,045,800 | $104,580 |
| 2023 | $832,499 | $83,331 |
| 2022 | $565,925 | $56,593 |
| 2021 | $498,563 | $49,856 |
| Total | $2,942,787 | $294,360 |
Minnesota R&D Tax Credit Summary
| Year | Minnesota Credit |
|---|---|
| 2024 | $52,290 |
| 2023 | $41,625 |
| 2022 | $28,296 |
| 2021 | $24,928 |
| Total | $147,139 |
Criteria for Qualifying Research Activities
The four-part test below defines what counts as qualified research activities
Purpose of the Research
The activity should develop or improve a business component, such as a product, process, software, formula, technique, or invention, by enhancing functionality, performance, reliability, or quality.
Resolving Uncertainty
The work must address technical uncertainties, such as determining the optimal design, method, or approach to achieve the desired outcome. The results should not be known in advance.
Systematic Experimentation
Eligible research must follow a structured experimentation process, including trial and error, modeling, simulation, or testing alternatives to reach the intended improvement.
Technological Basis
The activity must rely on hard sciences such as engineering, physical or biological sciences, or computer science. Artistic, social science, or routine data collection work does not qualify.
Why the R&D Tax Credit Matters ?
Since 1981, the R&D Tax Credit has helped businesses save billions in federal and state taxes. The credit enables companies to hire more staff, expand R&D, invest in facilities, and drive innovation. Thousands of businesses across multiple industries take advantage of this benefit each year.