Expanding R&D credits

If all goes well, Nanocopoeia, Inc. will grow to be a big player in the state among the biotech and medical device industry. It’s a small start-up nanotechnology company in Minnesota that isn’t making much money yet, CEO Bob Hoerr said.

The company recently created six jobs that pay an annual salary of more than $70,000 each. However, the company is being recruited to relocate to Ohio, a state with tax incentives, Hoerr said.

Rep. Tim Mahoney (DFL-St. Paul) sponsors HF3315, which would expand the state’s research and development tax credits to entice companies like Nanocopoeia to stay or start up in Minnesota.

“We’re looking at companies that are pre-revenue, that so-called ‘valley of death,’ where companies typically fail unless they get access to capital,” Hoerr said.

Currently corporations can claim an R&D credit for 5 percent of the first $2 million of research expenses and 2.5 percent after that. The proposal would allow a 20 percent credit, and the program would be capped at $3 million per year. The credit would also be refundable, so companies could essentially pay no taxes and get a refund. Presently, the credit is nonrefundable, so it can only cover the company’s tax liability.

The proposal would apply to “high technology” companies headquartered in Minnesota with fewer than 30 employees, and at least 51 percent of the employees located in the state.

House Taxes Committee Chairwoman Rep. Ann Lenczewski (DFL-Bloomington) questioned whether the Legislature should instead dole out grants.

“Tax credits are a nontransparent, in my estimation, illegitimate use of the tax system to create a behavior,” she said. “If they want money to give a company to do a great thing, they should just give them the money.”

Mahoney presented the bill, which was laid over for possible inclusion in the omnibus tax bill, to the committee on April 15. Sen. Terri Bonoff (DFL-Minnetonka) sponsors the companion, SF3106, which awaits action by the Senate Business, Industry and Jobs Committee.