Weekly Policy Blog: Join CBSA in Asking Congress to Address the R&D Tax Now
By: Colorado BioScience Association Date: 11/13/2023
Join CBSA in asking Congress to support leading-edge health innovation by American life sciences companies. We are asking Congress to remove a “tax on innovation” by restoring the immediate expensing of research and development/experimentation expenditures. R&D is critical to the development of innovative breakthroughs, especially in the life sciences, and we must ensure U.S. tax policy enables and encourages investment in this innovation. The American Innovation and R&D Competitiveness Act of 2023 (H.R. 2673) (S. 866) would fix the R&D tax amortization issue, but the expected November 17th government funding bill is possibly the last, best opportunity for a Section 174 fix to pass before 2024.
- Research and development (R&D) is critical to the development of innovative breakthroughs in the life sciences industry.
- R&D represents a major, necessary expense for life sciences companies to develop novel, safe, and effective products to serve patients.
- Wherever appropriate, the tax code must promote investment in R&D.
- Previously, Section 174 of the Internal Revenue Code allowed businesses to deduct “research and experimentation” expenses in the same taxable year in which they occurred.
- The 2017 Tax Cuts and Jobs Act (TCJA) modified Section 174. Beginning in 2022, businesses could no longer deduct such expenses in the same taxable year.
- Currently, businesses must amortize such deductions over five years for domestic expenditures or over 15 years for foreign expenditures.
- This change requires companies to pay taxes on 90% of the funds used to support their R&D expenses in 2022 and has created a new, significant tax burden on companies investing in R&D.
- The 2022 changes to Section 174 make it harder for companies to make critical investments in R&D and make U.S. businesses less competitive.
- This tax burden is particularly difficult for small, early-stage, pre-revenue companies, including, notably, many Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) awardees.
- The situation is even more difficult for partnerships and LLCs, where individual owners will be personally liable for the company’s taxes.
- As was noted by Dr. Stephen J. Susalka, Chief Executive Officer of the Association of University Technology Managers (AUTM): “An analysis conducted by a state land-grant R1 public university found that Section 174 would bankrupt almost every one of their ten SBIR startup companies. In fact, Section 174 would have a deleterious effect on SBIR/STTR startup companies across the nation, deforming the SBIR/STTR mission and undercutting its impact.”
The American Innovation and R&D Competitiveness Act of 2023 (H.R. 2673) (S. 866), a bipartisan bill introduced in the Senate on March 16, 2023, by Senators Maggie Hassan (D-NH) and Todd Young (R-IN), and in the House on April 19, 2023, by Representatives John Larson (D-CT-01) and Ron Estes (R-KS-04), would repeal this new amortization provision and restore the immediate expensing of R&D expenditures.
CBSA and other members of the Council of State Bioscience Associations (CSBA) submitted a letter to Congressional leadership on March 28, 2023, urging them to pass S. 866. CBSA also reached out to members of the Colorado Congressional delegation about the importance of addressing this issue and encouraged them to sign on as co-sponsors of the bill, which now has 39 co-sponsors in the Senate and 185 co-sponsors in the House.
CBSA thanks Representative Joe Neguse (D-CO-2) for signing on as an original co-sponsor of H.R. 2673 and thanks Representatives Brittany Pettersen (D-CO-7), Jason Crow (D-CO-6), and Yadira Caraveo (D-CO-8) for signing on as co-sponsors as well.
The current continuing resolution (CR) funding the federal government expires on November 17th and there is a high probability the next CR deal Congress votes on is the last legislative “vehicle” opportunity for a Section 174 fix to pass before 2024. We encourage you to join CBSA in reaching out to the Colorado Congressional delegation and Congressional leadership to tell them this is a top priority issue for you and explain why it’s so important that Congress pass a legislative fix to R&D amortization before the end of the year. Please contact CBSA’s Vice President & Counsel for Policy + Advocacy if you have any questions.