Individual income and corporate franchise taxes; federal changes to expensing research expenditures conformed.

2025-2026 Regular Session Introduced by Keith Allen and 3 co-sponsors

Minnesota would conform its tax treatment to federal rules by allowing full expensing of domestic R&D expenditures for both individuals and corporations.

Author added Bakeberg

#corporationsandpartnerships #taxation #taxation-income

Bill Summary: HF 3816 (2025-2026) — Conformity to Federal Changes on Expensing Research Expenditures

Purpose and Intent

HF 3816 would adjust Minnesota tax law to align (conform) with certain federal changes related to the expensing of research and development (R&D) expenditures. Specifically, it adds a reference to the federal treatment of full expensing of domestic R&E expenditures (as described in the federal law and accompanying Public Law 119-21, section 70302) to Minnesota’s Internal Revenue Code definitions. The goal is to ensure Minnesota’s individual income tax and corporate franchise tax treatment mirrors federal changes for expensing R&D costs, providing consistency between state and federal tax treatment.

Key Provisions and Changes

Definition update for Internal Revenue Code (IRC):

The Minnesota statute defining the IRC (Minnesota Statutes 2024, § 290.01, subd. 31) would be amended to include:
The federal full expensing of domestic research and experimental expenditures, as described in Public Law 119-21, § 70302.
This is in addition to the existing IRC references, i.e., the IRC as amended through May 1, 2023, and any uncodified provisions that relate to IRC provisions incorporated into Minnesota law.

Effective date provisions:

The definition section itself would take effect the day after final enactment.
The changes specifically related to federal changes (i.e., the full expensing Provisions) would be effective retroactively to the same dates they became effective for federal purposes.

Who/What Would Be Affected

Tax calculations for individuals and corporations: Minnesota uses an Internal Revenue Code reference for calculating taxes. By conforming to federal expensing changes for R&D, Minnesota would allow taxpayers to apply the federal treatment of expensing R&D costs when computing Minnesota taxes, ensuring consistency with federal tax treatment.

Tax practitioners and affected taxpayers: Corporations engaging in domestic R&D activities and individuals who itemize or otherwise rely on R&D expensing provisions would see alignment with federal policy, potentially impacting taxable income and timing of deductions.

Procedural and Timeline Aspects

Introduction and status:

Introduced and referred to Taxes (March 2, 2026).
Authors and sponsors listed, with co-sponsors including Greg Davids, Jeff Witte, Keith Allen, and Ben Bakeberg.
Version posted February 27, 2026; additional author additions noted May 7, 2026.

Effective dates:

General portion of the IRC definition change becomes effective the day after final enactment.
Federal-conformity changes (full expensing for domestic R&D) apply retroactively to the same dates those federal changes took effect.

Practical Impact

Simplifies compliance by aligning Minnesota tax treatment with federal rules regarding expensing R&D expenditures.

May reduce complexity for taxpayers who rely on federal R&D expensing provisions when preparing Minnesota tax filings.

The retroactive effectiveness of the federal-change portions could affect previously filed returns or require adjustments if Minnesota taxpayers elected or calculated deductions based on prior state rules.

If you’d like, I can compare the specific federal Public Law 119-21 §70302 text to Minnesota’s current code to highlight exactly which R&D expensing provisions are being conformed.