Background of Minnesota’s Research and Development Credit
Minnesota allows taxpayers to claim a corporate franchise tax credit equal to the sum of 1) 10% of the first $2 million of the excess for any “qualified research expenses” for the taxable year over the “base amount” and 2) 4% on all of such excess expenses more than $2 million. Definitions for purposes of the credit generally apply per IRC Secs. 41(b) through (e) (the research and development credit sections). Qualified research does not apply to expenses incurred outside of Minnesota. Unused portions of the credit can be carried forward for up to 15 years.
Refundable Option Enacted
Pursuant to H.F. 9, taxpayers may elect to have unused portions of the credit refunded, as opposed to having that portion carried forward. The amount that is refundable equals the “refundability rate” multiplied by any excess of the credit for the current tax year remaining after tax liability has been reduced to zero.
The refundability rate is 1) 19.2% for taxable years beginning during 2025 and 2) 25% for tax years beginning in 2026 and 2027. Future refundability rates must be determined by the Commissioner of Revenue. The election must be made on a timely filed return and is irrevocable once made.
Ryan’s Take and Action Steps
Taxpayers that claim the state’s research credit now can receive an immediate cash benefit as a result of the legislation if such an election is made. Credit recipients should examine their current cash position and financial forecasts to see whether the refund is preferable to having the credit applied against future tax liabilities. Such an analysis should be done expeditiously, as the refundable option takes effect this calendar year.
Contact our experts listed below to discuss how this new refundable option can enhance your cash flow and support your financial planning.
TECHNICAL INFORMATION CONTACTS:
Brady Bryan
Principal
Ryan
213.627.1719
brady.bryan@ryan.com
Adam Weinreb
Director
Ryan
917.472.9420
adam.weinreb@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.
- Sujet
- Brady R. Bryan