An audit of one of Minnesota’s biggest business tax breaks found serious problems with the incentive, saying it lacks a specified purpose in law and does not pay for itself in the long run.

The audit also found that the state isn’t collecting enough data on the decades-old research and development tax break to properly evaluate the incentive’s effectiveness.

The Office of the Legislative Auditor released the findings Thursday at a Senate Taxes Committee meeting, leaving lawmakers to digest the implications of a somewhat rudderless tax break that some have recently proposed enlarging.

The 67-page assessment is the first evaluation of the research tax credit since it was enacted in 1981, and comes amid a push in the House and Senate to increase how many businesses can claim the credit and how much they can claim. Lawmakers have proposed restoring the popular “refundability” feature, meaning start-up operations with little or no earnings to tax could claim the credit up to $250,000 and get a refund check from the state.

The research tax break allows companies to reduce the amount of state corporate income tax they pay based on the qualifying research they conduct in Minnesota. They can claim credit for the first 10 percent of qualifying research expenses, up to $2 million, and for 2.5 percent of expenses beyond that.

In its current form, the state’s R&D tax credit is forecast to cost taxpayers $72.8 million in forgone taxes in fiscal 2018. The proposed expansions would double the program, costing an additional $72.5 million in forgone taxes for a total of about $145 million, according to estimates from the state Revenue Department.

Yet Minnesota hasn’t set explicit objectives for the tax credit, the audit found. The state now requires purpose statements with measurable objectives for all tax expenditures, but that 2010 law doesn’t apply to tax incentives that already existed. The report urged lawmakers to set explicit measurable goals for the program.

The reviewers assumed the credit’s objective is to create or retain jobs, and found that while it directly and indirectly helped grow 790 to 1,540 jobs a year from 2008 to 2014, that came at a big cost. The overall economic benefits flowing from the program fell far short of the cost, equaling just 5 to 22 percent of the forgone taxes each year.

In other findings:

• Since 2008, the number of C corporations claiming the tax break, the most common form of business tapping the program, has ranged from 240 and 545.

• Large manufacturers claim the majority of the tax credit, with small companies claiming just 4 percent.

• The number of claimants jumped during the 2010-2012 time frame, the years the credit was refundable.

• Many surveyed users complained about burdensome tax audits — one lasted two years.

The report did not name the companies using the tax break. The Revenue Department classifies that as private tax information.

Sen. Roger Chamberlain, R-Lino Lakes, chairman of the Senate Tax Committee, said he supports the credit but acknowledged that “it certainly doesn’t look really great” in light of the audit. Chamberlain is also skeptical of restoring the refundable credits: “I think it went away for good reason,” he said.

Chamberlain told Sen. Carla Nelson, R-Rochester, sponsor of the expanded credit, to work with the Revenue Department and legislative auditor to address issues uncovered by the report.

Jeff Van Wychen, fiscal policy fellow at the North Star Policy Institute in St. Paul, said he agreed with tax committee member Sen. Tom Bakk, DFL-Cook, who suggested direct grants might be a better way to go.

“Tax credits tend to be enacted and they stay around forever,” Van Wychen said. “A budget item … gets a bit more scrutiny.”

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