The U.S. Congress renewed the R&D tax credit as part of its last-minute tax package of legislation before officially adjourning on Saturday.
The law provides a research tax credit equal to 20 percent of the amount by which a company’s qualified research expenses for a taxable year exceed its base amount for that year. The provision extends the research credit for qualified amounts paid or incurred in 2006 and 2007.
The estimated cost is $16.3 billion over five years and $16.5 billion over 10 years.
The R&D tax credit expired 11 months ago despite repeated promises by both Republicans and Democrats to renew the legislation used annually by as many as 16,000 U.S. companies.
With the R&D tax credit set to expire last year, both the House and Senate included a one-year extension of the credit in their respective tax reconciliation bills, but a joint conference committee was unable to reach agreement on the extension until late Friday night.
“Thanks to the credit, researchers won’t have to slow down or shelve new innovation because the risk of unnecessary tax burden has been eliminated,” Business Software Alliance President and CEO Robert Holleyman said in a statement. “The continued funding allows companies to continue to innovate and compete at current speed.”
Holleyman added that the R&D tax credit is not only important for U.S. technology companies, but also the United States, as it faces increased competition from international competitors.
According to the AeA, the former American Electronics Association, U.S. companies spent $16.8 billion abroad on research in 1999. By 2003, the figure had grown to $28.8 billion.
“The R&D credit is critical to the ability of businesses of all sizes to make those investments in the United States, particularly when many of America’s trading partners already provide deeper R&D incentives, Holleyman said. “America’s innovators need to be able to count on a future with pro development policies.”
The R&D tax extension also enhances the credit for portions of tax years that are in 2007 by increasing the rates of the alternative incremental credit and creating a new alternative simplified credit that does not use a gross receipts factor.
“It’s been a long and arduous political process, but we’re pleased that lawmakers were able to put aside partisanship and deliver this important element of the competitiveness agenda,” Semiconductor Industry Association President George Scalise said in a statement.
Looking forward to the 110th Congress which will convene in January, Scalise ranked three issues of “vital importance” to the technology sector: increasing funding for basic research, visa reforms that help retain foreign talent educated at U.S. universities and improving math and science education in grades K-12.
“Passage of this legislation has been a critically important objective and is part of our industry’s agenda to promote innovation and enhance U.S. competitiveness in the global economy,” Scalise said.
