View from Revenue: Teaming up to help Minnesota businesses
December 2019/January 2020 Footnote
Editor's note: Updated December 1, 2019
Minnesota’s economic success is built on a foundation of innovation, education, and a range of strategic public and private investments that help make our state a great place to live, work and play.
These investments include tax incentives and programs that encourage companies of all sizes to launch, grow and stay in our state. Strong businesses are key to help our communities and families prosper.
At the Department of Revenue, we work hard each day to fund our state’s future. A key part of our vision is making sure that qualifying individuals, investors and businesses can benefit from the incentives that apply to them.
Revenue partners with the Minnesota Department of Employment and Economic Development (DEED) — and other agencies — on several of these programs.
As CPAs, you also play a crucial role in helping your clients or employers understand and qualify for these tax credits and other programs. It’s important to double-check that all requirements are met before claiming a credit to avoid delays or issues with your tax return or refund.
Launch Minnesota Innovation Grant
A new incentive program, Launch Minnesota, was signed into law by Gov. Tim Walz in May. This program will help startup and early-stage technology companies grow and innovate. Launch Minnesota grants include:
- As much as $35,000 for research and development, direct business expenses and technical assistance.
- As much as $7,500 for housing or childcare expenses.
- As much as $50,000 in matching grants for businesses that receive funding through state Small Business Innovation Research or Small Business Technology Transfer programs.
Qualifying businesses may receive one of each grant over the program’s two-year cycle. DEED started accepting applications in November.
This year’s tax bill reinstated the state’s Small Business Investment (or “Angel”) Tax Credit for tax years 2019 and 2021 (not 2020). As much as $10 million in credits are available for each year. For certain businesses, the minimum investment has been reduced to $7,500 to allow more small investors to qualify.
Qualified investors or funds receive a refundable tax credit as much as 25% of their investment in a qualified small business. Individuals may claim as much as $125,000 ($250,000 for married joint-filers) of Angel credits per year.
It’s important for businesses, investors and funds taking part in this program to plan ahead. Businesses that receive investments and investors must be certified by DEED.
Companies that conduct qualifying research in Minnesota may qualify for the state Credit for Increasing Research Activities, often called the R&D Credit or research credit. The credit is equal to 10% of their first $2 million in qualifying expenses and 2.5% above that level.
Qualifying expenses are the same as for the federal R&D credit but must be for research done in Minnesota. Examples include R&D-related wages, supplies and contracted research.
Businesses cannot claim the Minnesota R&D Credit for any research expenses funded through a Launch Minnesota Innovation Grant.
Minnesota provides a range of other tax credits and programs that benefit businesses in specific economic sectors or areas of the state. Among them:
- Historic Structure Rehabilitation Credit. Property developers and investors can receive a refundable tax credit as much as 20% of the cost to rehabilitate a qualifying historic property. The developer of the project must apply to the Minnesota State Historic Preservation Office (SHPO) before any rehabilitation work begins.
- SEED Capital Investment Credit. This nonrefundable credit applies to investments made in qualified businesses in certain border cities. The credit is equal to 45% of your investment, as much as $112,500 per year. The business must be certified by DEED.
- Agricultural Asset Owners Credit. This nonrefundable credit is available to qualifying individuals, trusts or flow-through entities who rent or sell agricultural property or machinery to new farmers in Minnesota. The state Rural Finance Authority (RFA) must approve the application before you can claim the credit.
- Beginning Farmers Credit. New farmers may qualify for this nonrefundable credit by completing an RFA-approved financial management program.
Tax incentives and programs like these help our state thrive in today’s competitive economy. Making sure Minnesota individuals and businesses receive the benefits they are eligible for is an important factor in that equation — one that Revenue and MNCPA members share.