Under current law, the Minnesota research and development (“R & D”) credit is 10 percent of the first $2 million of qualifying Minnesota research expenses that exceed the “base amount,” and 2.5 percent of eligible Minnesota expenses in excess of $2 million.  Qualifying expenses are generally expenditures related to the research and development of a product, such as salaries and supplies but do not include equipment and similar capital expenditures.  “Base amount” is defined in the Internal Revenue Code.  Minnesota uses the same definition, but applies only Minnesota expenses and gross receipts.  The base amount calculation is a function of research expenditures and changes in gross receipts over a set period of time.        

This bill modifies the way in which the R & D credit is calculated.  Taxpayers would be eligible for a refundable credit in an amount calculated as follows:

Tier 1:  10 percent of the first $2 million of qualified research expenses, plus

Tier 2:  2.5 percent of the excess of qualified research expenses over the greater of qualified research expenses used to calculate the Tier 1 credit, or the base amount (whichever is greater). 

 Effective beginning in tax year 2013.

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