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More R&D Jobs and New Technologies Right Around the Corner?
By David M. Hull, CPA
Senate Finance Committee Introduces Bill to Make the Research Tax Credit Permanent
A bill was introduced on June 8 by Senate Finance Committee Chairman Max Baucus (D-Mont.) and Orrin Hatch (R-Utah), the ranking Republican on the committee. The bipartisan bill, S.1203, has a title that aptly explains the effort, “A bill to amend the Internal Revenue Code of 1986 to extend the research credit through 2010 and to increase and make permanent the alternative simplified research credit, and for other purposes”. This introduction follows a virtually identical bill that was introduced in the House back in January, H.R. 422.
President Obama has included making the Research Tax Credit permanent in his budget proposal for Fiscal Year 2010; and called on making the credit permanent several times, stating it will create jobs.
The Senate and House are clearly coordinating their respective bills to highlight a singular calculation method and timeframe. This leads many in Washington and the accounting industry to believe the credit will become permanent this time around. The credit that has been temporary since 1981 is going to find its permanent place in the tax code.
The vehicle that is used to make the credit permanent is one of the available calculation methods called the Alternative Simplified Credit. Introduced in 2006, the Alternative Simplified Credit is designed to eliminate the use of company revenue and arbitrary base periods to determine credits. The changing base periods and controlled groups made calculating and auditing claims cumbersome. Additionally, a company’s sales growth was detrimental to credit opportunity.
In addition to making the ASC permanent, the legislation increases the percentage of the credit from the scheduled 14% to 20%. That increase is important for two reasons. One: It is more of an incentive, the main reason for the credit. Two: Politically, it makes the new method more lucrative than any of the previous methods – Eliminating the support for any of the other methods from Taxpayers. This clears the way for all interested constituencies to be pleased.
The co-sponsor of the Senate bill, Senator Hatch, stated, “If we want to strengthen our economy and create jobs, both in the near-term and in the longer run, it is vital that we maintain and even enhance our position as the world leader in innovation,” Hatch continued. “And as we increase productivity through research and innovation, we will be in a better position to deal with our looming budgetary challenges. We need a strong and permanent research credit to encourage the kind of growth that will create these good jobs in Utah and elsewhere across the nation.”
We will be following the progress of the bill through Congress and report back.
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