Manufacturers know all too well that Congress does not always operate in a way that maximizes business productivity and investment. A prime example is the package of over 50 plus temporary tax provisions, a.k.a. “tax extenders” that expired at the end of 2014 – just two weeks after Congress finally got around to passing them in the first place. (continue reading…)
Tag: R&D Tax Credit
With a strong push from manufacturers, the House passed legislation (H.R. 880) May 20 to reinstate, strengthen and make permanent the tax credit for research and development (R&D) – the lifeblood of manufacturing.
While designed to be an incentive to spur private sector investment in innovation, the R&D credit has never been a permanent part of the tax code. Instead, it has been extended sixteen times since it was first enacted in 1981, most recently expiring at the end of 2014. The on-again, off-again nature of the credit creates unnecessary uncertainty for manufacturers who need to know the credit will be around when planning for long-term R&D projects. Making the R&D credit permanent would provide manufacturers with much-needed certainty, increase its incentive value, create over 36,000 jobs annually, and restore the U.S. position as the leader in global innovation. (continue reading…)
Manufacturers must invest in advanced technologies to stay competitive in a 21st century global economy. To be an innovator, manufacturers must hire engineers, scientists, and design teams who will create the next great technology that will make the company, and the economy, more productive. The research and development (R&D) tax credit contributes to this process by alleviating some of the cost of hiring such top-notch R&D teams and investing in the supplies needed to come up with the next big thing. (continue reading…)
For years, manufacturers have applauded the efforts of Congressman Kevin Brady (R-TX) and John Larson (D-CT) for championing legislation to finally make the on-again, off-again R&D tax credit permanent once and for all. Now, the wave of new supporters for this much-needed research incentive is picking up momentum. (continue reading…)
Manufacturers know first-hand that the lack of a permanent tax incentive for R&D investment is negatively impacting US competitiveness in the global economy. Instead, the US R&D tax credit is constantly being extended temporarily and allowed to expire before companies can even consider factoring in the credit for their future investment budgets. Meanwhile, other countries are ramping up their R&D investment incentives and courting US manufacturers to look abroad. (continue reading…)
The Department of Treasury and IRS released new guidance last week on the ability of a company to claim the R&D tax credit on computer software that is developed primarily for the company’s internal use.
Manufacturers may be pleased with the guidance since companies are currently unable to count computer software research intended for the company’s own use as a qualified research expense for the purpose of the credit. The proposal more clearly specifies what types of software would be excluded from using the R&D credit (i.e. software used for administrative functions), and provides examples that may be helpful in determining which activities would qualify for the credit. (continue reading…)
Ever wonder why the R&D credit is so important and why it needs to be made permanent? Well, if you have two minutes to spare, you can learn exactly why a permanent R&D credit would boost US innovation and jobs by watching The Tech CEO Council’s “Make the R&D Tax Credit Permanent” video. The video calls on Congress to make the credit permanent once and for all. The NAM agrees — it’s time to give manufacturers the certainty they need to once again make the US the world’s leading innovator. Click here to watch the video, and help spread the word that the R&D credit should be reinstated and made permanent now.
Manufacturers continue to tell Congress that failure to renew the expired tax provisions typically contained in the “tax extenders” package creates unnecessary uncertainty and sidelines business investments. Now, even the agency responsible for carrying out U.S. tax laws is joining the debate.
Stating he is “concerned” that Congress will likely not approve a tax extenders package until later this year, John Dalrymple, the IRS deputy commissioner for services and enforcement, said this week that he hopes Congress will pass extenders as soon as possible to give the agency enough time to make the necessary systems changes for the tax filing season.
The NAM has long been pushing Congress to act ASAP to renew the expired tax provisions since the absence of the R&D tax credit, enhanced Section 179 expensing, bonus depreciation and other important tax incentives are having a negative impact right now. Without these incentives in place and without a clear view of when and for how long they will be renewed, manufacturers cannot incorporate new investments into their future business plans. Since investments translate into production and expansion, every day that goes by without these incentives in place is a missed opportunity for growth in manufacturing and in turn, the U.S. economy.
The House has already acted to make permanent several pro-manufacturing tax provisions typically found in the extenders package, but the Senate has not yet passed their extenders bill, the EXPIRE Act. Earlier this year, the NAM joined over 150 organizations in writing to Senators in support of the bill, and continues to meet with Congress to urge that the expired tax provisions be reinstated as soon as possible. After all, eight months is far too long for the U.S. to be sitting on the sidelines while our global competitors continue to incentivize productive business investments.
While most Americans see the start of the New Year as a time for positive changes, many manufacturers considered January 1, 2014 a day that marked the continuation of an alarming trend – Congress once again allowed the R&D tax credit and other important tax provisions to expire.
Unfortunately, this is repeat of what happened at the end of 2011 when the R&D credit and over fifty tax provisions usually considered in an “extenders” package lapsed and were not reinstated until the fiscal cliff deal retroactively extended the package until the end of last year. The fact that Congress decided to adjourn at the end of 2013 without addressing the expiring tax provisions signals that while lawmakers may feel these provisions matter, they have placed less emphasis on the timing of when they are extended – a significant problem for manufacturers.
The expiration and retroactive extension of the R&D credit spurs volatility in manufacturers’ earnings. A recent Bloomberg article captures this problem, citing that many companies’ Q4 2012 earnings were lower because of the expired tax credit, but then saw a one-time boost in earnings in Q1 2013 after the retroactive reinstatement where five quarters of the tax benefits were claimed. This is a headache for manufacturers and investors alike, as tax rates and earnings may change significantly by quarter or year.
Manufacturers claim the most R&D credit amounts out of any industrial sector and account for the lion’s share of private-sector research and development. Allowing the credit to repeatedly expire creates unnecessary uncertainty for American businesses investing in R&D and serves as a roadblock on the path to innovation.
The NAM urges Congress to include an enhanced R&D incentive as a permanent part of the tax code to boost U.S. investment in R&D, create high-wage jobs, and spur economic growth. Absent action on a permanent incentive this year, the R&D Credit must be seamlessly extended as soon as possible.
Members of Congress and the Administration seem to agree on what manufacturers have long known: enhancing investment in research and development, or R&D, drives economic growth. But that growth cannot be sustained without a permanent R&D incentive.
The uncertainty of an on-again, off-again tax credit upends the innovation, new product development and job creation that manufacturers contribute to the economy. When there is no telling whether the incentive would be around for the entire length of a manufacturer’s R&D project, investment in the U.S. manufacturing base suffers. A JP Morgan Chase report released in August found that private spending on R&D slowed to 2.4 percent in 2013. We cannot allow investment to tumble any further. With the credit set to expire for the sixteenth time at the end of the year, that outcome becomes increasingly possible.
That’s why the NAM is advocating a permanent and strengthened R&D incentive as one of our priorities for comprehensive, pro-growth tax reform. The United States has been a leader in promoting R&D for over 30 years, but more and more countries have provided greater certainty for businesses in recent years by enacting permanent—and more generous—R&D incentives. A strong and permanent R&D credit will allow the United States to remain competitive in the global race for R&D investment dollars, particularly as manufacturers are courted by other countries with more generous and more stable R&D tax incentives and lower corporate tax rates.
The certainty provided by a strengthened, permanent R&D incentive would enhance its incentive value and help ensure the United States’ leadership in global innovation.
Christina Crooks is the director of tax policy for the National Association of Manufacturers.