In two cases, the Minnesota Tax Court clarified the extent to which the Minnesota research and development (R&D) credit is calculated based on the Internal Revenue Code’s defined terms. Minnesota law incorporates the Internal Revenue Code’s definition of “base amount” for purposes of calculating the Minnesota R&D credit. The proportion of qualified research expenditures to the base amount is critical for calculating the federal and Minnesota R&D credits. The base amount is the fixed-base percentage multiplied by the average annual gross receipts for the four preceding tax years. The fixed-base percentage is the aggregate qualified research expenditures divided by aggregate gross receipts. At issue in these cases is the extent to which these numbers are limited to Minnesota amounts only for purposes of calculating the Minnesota R&D credit.
In two cases that were consolidated for oral argument and decided with identical analysis language, the Minnesota Tax Court granted summary judgment:
(1) In favor of the Commissioner, in deciding that the Minnesota law incorporates the federal minimum base amount provision as part of the state law definition of “base amount”;
(2) In favor of the taxpayer, in deciding that the Minnesota base amount must be computed using federal gross receipts (rather than Minnesota gross receipts) in the denominator of the fixed-base percentage; and
(3) In favor of the Commissioner, in deciding that the federal provisions allowing for an alternative simplified credit calculation are not incorporated into Minnesota law.