White House Announces Plan to Enact a Permanent Research and Development Tax Credit

R&D Tax Credits Results in Significant Loss for High-Tech IndustriesLast week, President Barack Obama announced a detailed plan for economic recovery that includes asking Congress to expand and permanently extend Research and Experimentation tax credits, also known as Research and Development (R&D) tax credits. For many years, IPC has advocated for a permanent R&D tax credit. The R&D tax credit expired on December 31, 2009 resulting in a daily average loss of $45 million and 330 jobs for high-tech industries, including the electronics industry. The frequent expiration of the R&D tax credit significantly hinders the ability of companies to make long-term R&D investments and take advantage of the tax credit. A permanent R&D tax credit is imperative for the U.S. electronics industry to remain globally competitive, retain jobs, and ensure the future manufacturing competitiveness of U.S. technology-based businesses. Enactment of a stronger and permanent R&D tax credit will assist electronics companies through today’s unstable economic times.

White House Proposed Plan for R&D Tax Credits

The President proposes a plan to expand, simplify, and permanently extend the R&D Tax Credit. The proposal would expand the R&D tax credit by about 20 percent making it the largest increase in the history of the R&D tax credit. The rate for the Alternative Simplified Credit (ASC), which uses a more simplified equation for businesses to calculate their R&D tax credits, would increase from 14 percent to 17 percent. Finally, the proposed plan would make the R&D tax credit permanent.


IPC Supports a Permanent R&D Tax Credit

IPC is a staunch supporter for a permanent R&D tax credit. For years, IPC and its members have been educating legislators on the need to enact a permanent R&D tax credit. Just this past June during IPC Capitol Hill Day, IPC members met with over 70 congressional offices advocating for enactment of permanent R&D tax credit legislation. IPC is also an active member of the R&D Credit Coalition, a group of approximately 50 trade associations and 100 companies, which has been working to have Congress enact permanent R&D tax credit legislation.

About R&D and R&D Tax Credits

R&D is the lifeblood of a strong and competitive U.S. electronics manufacturing industry. Important to a vibrant electronics industry, R&D is critical in advancing technology, growing a business, diversifying a product line, and enabling businesses to develop new processes and products. Investment in R&D also entails investment in skilled employees and subsequent technology infrastructure.

The R&D tax credit is designed to stimulate investment in R&D. Qualifying R&D activities, as understood for tax purposes, are not limited to revolutionary breakthroughs in manufacturing. R&D tax credits allow businesses to apply for a dollar for dollar reduction of tax for qualified expenditures.

How Electronics Companies Use the Research and Development Tax Credit

The electronics industry conducts many day-to-day activities that can qualify for R&D tax credits. Simple items, such as discarded scrap material created as a result of modifications of a fabrication process can be claimed for R&D tax credits. Business can receive R&D tax credits not simply for the final product, but all the changes, variations, and experiments involved in getting to their final result. Ongoing research and experimentation during all phases of fabrication such as design, testing, compatibility, functionality, and ultimately production may be claimed as R&D tax credits.

Why is a Permanent Research and Development Tax Credit Important?

The intent of the R&D tax credit is to encourage companies to conduct R&D in the U.S. However, the R&D tax credit expires frequently, discouraging companies from making long-term R&D investments. Companies cannot take full advantage of the credit due to the uncertainty regarding the credits future availability. If the R&D tax credit were made permanent, U.S. business would be able to make long-term investments in R&D activities knowing that they would be eligible to claim tax credits.

If the R&D tax credit were made permanent, U.S. companies will be better able to compete globally. R&D tax incentives in other countries are significantly greater than the United States, which has created an advantage for companies that are located in countries with significant R&D support. Many countries also have a form of a permanent R&D tax credit allowing for long-term R&D investment.

The White House will have to work with Congress rapidly in order to enact R&D tax credit legislation before Congress adjourns for the year. The President’s proposal and ongoing IPC efforts for a permanent R&D tax credit can be found at the following website: www.ipc.org/R&D-Tax-Credit-Take-Action. For more information please contact Ron Chamrin, IPC manager of government relations, at ronchamrin@ipc.org or 703-522-3964.

2 Comments

  1. business plan format
    Posted November 24, 2010 at 8:36 am | Permalink

    Let’s hope this plan for economic recovery will be in the interest of everyone and will suit the nation’s interests!

  2. TaxRefundGuarantee
    Posted January 4, 2011 at 1:18 pm | Permalink

    I am seriously going to start using all of that! Thank you so much, I am not even kidding! There is nothing that I hate more than coming up with content all the time to barely keep our real estate blog up. It’s just so time consuming – so thanks again!


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