What’s good for business could mean a big hit to state's General Fund

Arguably one of the best tools to promote small business growth in Minnesota has been the research and development credit.

However, since being in enacted in 1982, and depending on the state’s economic conditions, the qualifications for its use has changed, as well as its tax implications. Three bills before the House Taxes Committee Wednesday would allow for greater use of the credit in an effort to attract and retain high-paying tech jobs.

Formacoat owner Mark Gross testifies before the House Taxes Committee Jan. 22 in favor of HF62, which would extend the research credit to sole proprietor companies such as his. Photo by Paul Battaglia

Rep. Sarah Anderson (R-Plymouth) sponsors HF62, which would extend the credit availability to sole proprietors for tax year 2015. HF61, which she also sponsors, would return the credit to a refundable status — a provision taken away in 2013 because of the cost to the state. Rep. Roz Peterson (R-Lakeville) sponsors HF258, which has similar provisions. All were held over for possible omnibus bill inclusion. None have Senate companions.

Anderson said extending the research and development credit has bipartisan support and noted its inclusion in last session’s omnibus tax bill. But the provision was removed in conference committee.

“When it comes to refundability, it is such a tool to retain and attract businesses here. … We have an opportunity now to help small startup companies — these are mom and pop shops — people that had ideas, took it to their garage and now they want to take it to the next level,” she said.

Rep. Ann Lenczewski (DFL-Bloomington) noted that she supported making the credit nonrefundable during the years the state faced a deficit. “I killed it because it is a very expense provision. … We had to make choices, because they are not free, and someone else has to pay for it.”

According to a Department of Revenue estimate, making the credit refundable, as proposed in HF61 and HF258, would have an $83.6 million biennial cost to the state’s General Fund.