The 2017 Legislature is considering a trio of bills to expand state tax incentives for corporate research and development, with advocates arguing that Minnesota has fallen behind in the national competition for high-tech industry.
Yet Minnesota has never formally evaluated whether the state R & D tax credit works — or even disclosed which companies benefit.
The bills are being discussed even as the state's legislative auditor prepares to release a new report on the tax provision, which will for the first time examine the effectiveness of a subsidy that cost taxpayers an estimated $64.8 million last year.
The report, due out this week, is the first under a 2015 law requiring Jim Nobles' office to evaluate at least one state incentive for economic development every year. His staff drew up a list of 32 such programs affecting the state's General Fund.
The corporate R & D tax credit is popular with executives in the high-tech and medical device industries, who say it helps Minnesota compete with other states. But some leaders in the small-business community say it's tilted in favor of big corporations and against small entrepreneurs.
The credit, enacted in 1981, allows companies to reduce the amount of state corporate income tax they pay; some of what they spend on qualifying research conducted in Minnesota is subtracted from taxes owed. Minnesota was the first state to create its own R & D tax break, to pair with the similar federal credit.
In fiscal 2016 the credit erased about 3.5 percent of Minnesota's corporate tax haul.
The credit was designed to help Minnesota create and retain high-paying jobs, and there is some evidence to support the theory. Daniel Wilson, an economist at the San Francisco Federal Reserve Bank, studied the state credits and concluded that creating or expanding a state's R & D tax credit "led to a significant increase in R & D in that state over subsequent years."