Minnesota Research and Development Credit: NOW Applies to Pass-Through Entities and is REFUNDABLE!

Minnesota Governor Signs “Jobs Bill” into Law Today! As stated in an earlier post [1], on Monday, March 29, 2010, the Minnesota House and Senate both passed HF 2695. Today, Governor Pawlenty signed it into law. The bill includes several credits and incentives; however, perhaps the most broadly applicable change involves enhancements to the Minnesota research and development credit. Major changes to the MN R&D Credit:

1. Effective for taxable years beginning after December 31, 2009, partners in a partnership and shareholders in a S corporation may now take the R&D credit (previously, only C corporations could take the credit).
2. The tax credit is now equal to 10% (was 5%) of the first $2,000,000 of the excess (if any) of the qualified research expenses for the taxable year, over the base amount; and 2.5% on all of such excess expenses over $2,000,000.
3. The credit for taxable years beginning after December 31, 2009 is refundable (previously, was not refundable).

ACTION ITEMS

All pass-through entities should seek to take advantage of the Minnesota research and development credit for the first time in 2010.

In addition, all companies that have had losses for several years, and have never taken a Minnesota R&D credit, should seek to take advantage of the credit in 2010 to obtain a refund.

Please contact me at brian.strahle@bakertilly.com [2] to conduct a research and development credit study to not only determine if you qualify for a credit, but also to gather the information, and documentation to support and quantify your credit (which can now be turned into cash even if your company has net operating losses).