Research and Development Tax Credit Extension Passes U.S. Senate
On March 10 the U.S. Senate passed by vote of 62 to 36 “The American Workers, State, and Business Tax Relief Act” (H.R. 4213) that includes a seamless one year extension of the Research and Development (R&D) Tax Credit through the end of December 31, 2010. IPC, and fellow members of the R&D Credit Coalition, lobbied Congress to pass legislation that would extend the R&D Tax Credit beyond the current expiration date of December 31, 2009. Differences in the Senate-passed version of HR 4213 will need to be reconciled with the House-passed version. The President is expected to sign the bill in to law, which will grant companies the R&D tax credit for expenditures incurred during the 2010 calendar year.
IPC continues to press Congress for a permanent R&D tax credit. R&D is critical in advancing technology, growing a business, and diversifying a product line. Important to a strong electronics industry, R&D enables businesses to develop new processes and products. The passage of a permanent R&D tax credit is imperative for the electronics industry to remain competitive, retain jobs, and ensure the competitiveness of technology-based businesses.
The R&D tax credit is designed to stimulate company R&D over time. R&D, as understood for tax purposes, is not limited to staff in white coats working in a laboratory. 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. 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.
R&D support varies from country to country, which has created an advantage for companies that are located in countries with significant R&D support. Industrial nations such as France, Germany, Japan, Sweden, South Korea, and the United Kingdom have considerable R&D tax credit benefits from their governments. South Korea, for example, allows a 100% deduction for R&D expenses and the United Kingdom allows for a whopping 130% deduction for R&D expenditures. Many countries also have a form of a permanent R&D tax credit allowing for long-term R&D investment. The U.S. R&D tax credit routinely expires, discouraging companies from making long-term R&D investments. The manufacturing competitiveness of the companies located in a country can be significantly improved by increased R&D government support.
IPC has been reaching out to and will continue to work with our members to influence government policies that support the entire industry. Our worldwide efforts to enhance the industry supports our policy of a fair, open and rules-based international trading system that provides for a level playing field, equitable competition, and market access for all sectors of the electronic interconnection industry. By working with governments around the world IPC strives to increase the overall robustness of the global electronic interconnect industry. The outcome resulting from all IPC’s global efforts is likely to benefit your company.
All U.S. electronic interconnect industry companies are encouraged to visit the following webpage where you can learn how to take action to pass a permanent R&D tax credit. www.ipc.org/R&D-Tax-Credit-Take-Action.
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April 8th, 2010 at 1:38 pm
Even with this extension, there are two significant issues with the existing R&D Credit regs.
First, the regs are difficult to follow without a thorough understanding of the tax law. This often requires qualified US manufacturers to hire outside consultants to guide them through the details. Unfortunately, the cost of consultant support has made it prohibitive for many small to mid-sized manufacturers to benefit from these federal incentives. Today, tens of thousands of these manufacturers have historically bypassed this valuable tax credit.
Second, in 2008, the IRS elevated the R&D Credit to a Tier 1 Issue, which has put more emphasis on the need for contemporaneous documentation. To defend the R&D Credit in an audit, a taxpayer needs to qualify every R&D project under the regulations, AND identify costs associated with the project while the costs are being incurred (known as nexus). This documentation requirement is burdensome on engineers and production management staff, which makes capturing and defending the Credit a challenge for most manufacturers.
To address both these issues, we built Titan Armor – a low-cost software solution that helps manufacturers meet the current regulatory requirements for the R&D Tax Credit. You can get more information at http://www.titanarmor.com.