Research and Development Tax Credit

Companies that engage in certain research and development (R&D) activities in Minnesota may qualify for the Credit for Increasing Research Activities.

The R&D credit is equal to 10 percent of qualifying expenses up to $2 million, and 2.5 percent for expenses above that level. Qualifying expenses are the same as for the federal R&D credit – defined in Section 41 of the Internal Revenue Code – but must be for research done in Minnesota.

Examples include R&D-related wages, supplies and research contracted outside your business. Contributions to qualified nonprofit organizations that make grants to early-stage technology businesses in Minnesota also may qualify.

How to Claim the R&D Credit 

C-Corporations will complete Schedule RD to determine the amount of the credit. Include any amount of credit reported to the corporation on Schedule KPC by a partnership in which the corporation is a partner.

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.