The R&D Tax Credit Aspects of Minnesota



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Minnesota
        The state of Minnesota contains numerous large companies, as well as, emerging businesses which have contributed to the state’s long standing successful economy. The urban area of Minneapolis is known as an economic hub for leading companies. Some of the top industries within the state include Bioscience, Manufacturing , and Clean Energy.  These particular sectors have flourished due to the amount of available resources and opportunities the state offers to companies.


The Research & Development Tax Credit

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of Uncertainty
  • Process of Experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent.  On December 18, 2015, President Obama signed the bill making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax and startup businesses can utilize the credit against payroll taxes.


Minnesota’s R&D Tax Credit

        In addition to receiving the federal R&D tax credit, companies involved in research and development activities are able to obtain Minnesota’s R&D tax credit as well. The state credit amount is equal to 10% of qualified research expenses up to $2,000,000 and 2.5% for qualified research expenses above $2,000,000.  Any credits claimed after 2010 can be claimed by a partner or shareholder in an S corporation, and a partnership or business that has qualifying R&D expenses in Minnesota that exceeded its base amount.

Minnesota Research and Development Authority
        Companies involved with research and development activities are eligible to receive the federal R&D tax credit along with Minnesota’s state R&D credit. Research and development activities within a company could potentially increase due to a proposal of creating a Minnesota Research and Development Authority.  The research and development authority would be funded with $500 million for 10 years. This authority would oversee the fund to determine what industries the money should be allocated to.

        Some of the initiatives proposed for this fund include a Capital Innovations Program, Industrial Technology and Innovation and Competitiveness Program, along with many other initiatives. The Capital Innovations Program would provide grants to construct new or improve existing infrastructure for research and development activities. The Industrial Technology and Innovation and Competitiveness Program would support technological advancements within various research and development industries. If these programs were established, they would encourage companies to take part in R&D related activities.

Major Industries in Minnesota

        Biosciences, Manufacturing and Clean and Renewable Energy are all significant sectors within Minnesota’s economy. The following sections will discuss companies who are innovating within these verticals.

Biosciences
        Minnesota was the number one state in awarded medical device patents per capita in 2015.  The state has a strong bioscience presence mainly due to support from the University of Minnesota and the Mayo Clinic. The University of Minnesota has invested in multiple facilities for researchers to utilize modern technology and conduct research. The Mayo Clinic is currently constructing a $6 billion facility to provide space for incubators to work on advancements within the medical industry.

        Medtronic: One of the largest medical device companies is Medtronic, Inc. which is located in Minneapolis. In 2015, the company spent $1.6 billion specifically on research and development programs.  Some of the products the company has invested significant time and resources developing are an insertable cardiac monitor,  a core valve, and gastric positioning system.

  • Reveal LINQ Insertable Cardiac Monitor – This is currently the smallest heart monitor available in the industry. It was designed to automatically monitor an individual’s heart rhythms for up to three years.
  • CoreValve Evolut R – This product is a self-expanding core valve whose purpose is to assist individuals who have a narrowed aortic valve.
  • GastriSail – The device is a gastric positioning system (MIS) whose purpose is to improve the efficiency of surgery procedures.

        Cargill Corporation: The Animal Nutrition Innovation Campus in Elk River, Minnesota contains state of the art laboratories for researchers to study nutrition.  Modern technology and equipment are used to examine animal reactions to nutrients in order to further analyze the effects of nutrients and metabolic modeling.  

        At Cargill’s R&D center in Minneapolis, scientists, engineers and other biotechnology specialists utilize advanced equipment to study molecular biology, chemistry, enzymology, fermentation and production plant design and efficiency.  These studies allow Cargill to develop new products and improve processes for creating food, feed and biofuels. 

Manufacturing
        Minnesota’s manufacturing industry includes 317,200 workers who generate over $48 billion of sales each year. There are almost 8,000 manufacturers in the state ranging from large Fortune 500 to small companies. The significant amount of venture capital available in Minnesota makes it an attractive place for owners to start a business.  From 2013 to 2015, Minnesota had almost $1 billion of venture capital investments. Popular exported products include medical products, machinery, plastics, food byproducts and pharmaceuticals.

        General Mills: Based in Minneapolis, Minnesota, General Mills, Inc. is one of the largest food manufacturing companies involved with creating many new innovations within the food industry.  The company has created a General Mills Worldwide Innovation Network (G-Win), which is a program where General Mills works with other companies to develop and create new products.

        Land O’Lakes: Land O’Lakes, Inc.  is a manufacturer and supplier of high quality dairy products including butter, cheese, margarines, eggs, sour cream and milk. In 2015, the company had a $4 billion revenue from selling their dairy products. The company is involved with heavy manufacturing activities and believes it is important to establish energy efficient practices during production.  The consumption of natural gas and electricity, as well as, water are tracked to reduce any major inefficiencies.

Clean & Renewable Energy
        There is a significant amount of clean and renewable energy companies located in Minnesota. Minnesota is seen as a great location to support these technologies, especially with new investments and developments in solar , water  and wind technology. The state has the capacity to support wind energy, the right resources to implement water technology and space to house solar technology.

    Ecolab: Ecolab, Inc. has experience in the development and innovation of various methods to reduce reuse and recycle water by utilizing modern technologies. The company develops water management, antimicrobial, personal & environmental hygiene, solid chemistry, dispensing & monitoring and polymer technologies. This past year Ecolab teamed up with Microsoft to create a solution for water shortage by using cloud computing and Nalco’s 3D TRASAR technology.  The 3D TRASAR device provides measurement and control for facilities with real-time sensor units. The information collected from the sensors is transferred to cloud storage on Microsoft Azure and Azure IoT Suite. The combination of these tools allow for predictive analytic resulting in increased efficiency and management for facilities.  

    Geronimo Energy: Geronimo Energy was in charge or planning and developing the Aurora Solar project, while Enel Green Power North America is responsible for building and managing the solar project. The Aurora Solar project consists of installing a total of 100 MW of solar panels within 16 counties in Minnesota.  A device called the tracker will be installed, which is an automated system that serves to control the angle of the solar panels. The tracker is able to move the panels in order to achieve the most optimal amount of sunlight for energy. The system was designed as a smart system to position panels in a way that prevents any blocking of sunlight from other panels.

    Xcel Energy: Xcel Energy, Inc. is headquartered in Minneapolis, Minnesota and provides power to eight states within the United States. Besides providing energy, the company also offers customers innovative solutions to manage energy usage. Wind power is one of the divisions of renewable energy that Xcel Energy provides which consisted of 17% of the total amount of energy transported to customers in 2015.  The company estimates that 24% of their energy will be generated from wind by 2020. Within Minnesota, Xcel Energy owns and operates the Grand Meadow and Nobles wind farms.


Conclusion

        Minnesota is continuing to support and increase the amount of opportunities for businesses who are engaged in research and development. This particular state has many companies within the Biosciences, Manufacturing, and Clean Energy sectors who are involved with innovative research and development. Due to these activities, companies are eligible for federal and applicable state R&D tax credits.

Article Citation List

   


Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Lauren Chin is a Tax Analyst at R&D Tax Savers.

Lara Tomiko is a Tax Analyst with R&D Tax Savers.


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