HF3816

Purpose

• The bill aims to align Minnesota's tax rules with recent federal changes related to expensing research expenditures. It updates how the Internal Revenue Code (IRC) is defined for Minnesota law, to incorporate specific federal provisions that affect how research and development costs can be expensed.

Main provisions

• Amends Minnesota Statutes 2024 section 290.01 subdivision 31 to redefine “Internal Revenue Code” for Minnesota tax purposes.
• The Internal Revenue Code is defined as the IRC of 1986 as amended through May 1, 2023.
• The definition also includes section 70302 of Public Law 119-21, which relates to full expensing (100% expensing) of domestic research and experimental expenditures.
• The definition further includes any uncodified federal provisions that relate to IRC provisions that Minnesota law incorporates.

Effects and implications

• By adopting the federal full expensing approach for domestic research and development (R&D) expenditures, Minnesota would conform its tax treatment of R&D costs to the federal policy change.
• The bill clarifies that Minnesota follows the federal definitions of the IRC up to the specified date and includes certain federal provisions (including uncodified ones) that affect those IRC provisions when applying Minnesota tax law.

Significant changes to existing law

• Expands Minnesota’s definition of the Internal Revenue Code to explicitly include the federal full expensing provisions for R&D expenditures (via Public Law 119-21, section 70302).
• Adds reference to uncodified federal provisions related to the IRC, ensuring these provisions are incorporated into Minnesota tax conformity where applicable.
• Establishes a specific endpoint date (May 1, 2023) for the IRC as it applies to Minnesota, while also including the additional full-expensing provisions.

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Relevant Terms - Internal Revenue Code - Minnesota Statutes 2024 section 290.01 subdivision 31 - Subd.31 - full expensing / 100% expensing - domestic research and experimental expenditures - Public Law 119-21 - section 70302 - uncodified provisions - May 1, 2023 - Internal Revenue Code of 1986