Report: MN research tax credit impact small, costly
A new report from the Office of the Legislative Auditor says Minnesota’s research tax credit for businesses is not paying for itself.
The analysis found the state incentive helped to increase jobs and earnings over a seven-year period. But the growth was relatively small and the benefits offset only a small share of the credit claimed.
Businesses claimed $50 million of research credit in 2014 alone. The offset that year was 20 percent.
Jody Hauer, program evaluator for the OLA, told members of the Senate tax committee Thursday that they should establish explicit and measurable objectives for the credit.
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“Evaluating the effectiveness of the research tax credit requires us to know what is the credit’s purpose,” Hauer said. “But in Minnesota, the statutes do not provide an explicit purpose for the research tax credits.”
Hauer also noted that the Minnesota Department of Revenue collects insufficient data on the research credit to evaluate its performance. The report recommends improvements in that record keeping.
Assistant Commissioner Jenny Starr told lawmakers that the department is already taking action to address the report recommendations.
The Legislature established the research tax credit in 1981.
The report is the first in a series that the legislative auditor is planning on state economic development incentive programs.