U.S. Senators Chris Coons (Del.) and Mike Enzi (Wyo.) have re-introduced legislation that would give innovative startup companies an opportunity to take advantage of the successful Research and Development Tax Credit, which incentivizes American companies to invest in innovation. They teamed up with U.S. Senators Roy Blunt (Mo.), Chuck Schumer (N.Y.), Marco Rubio (Fla.), Debbie Stabenow (Mich.), and Jerry Moran (Kan.) to re-introduce the bill on Thursday.
The Startup Innovation Credit Act of 2013 allows qualifying companies to claim the R&D Tax Credit against their employment taxes instead of their income taxes. Rep. Jim Gerlach (PA) and Rep. Ron Kind (WI) are expected to re-introduce companion legislation in the House of Representatives next week.
"Revitalizing our manufacturing sector will create quality, middle class jobs -- but it depends on Americans' ability to take ideas and turn them into marketable products that can and will be made right here in the United States," Senator Coons said. "The Research and Development Tax Credit has helped tens of thousands of successful American companies create jobs by incentivizing investment in innovation, but startups can't take advantage. Firms younger than five years old have been responsible for the overwhelming majority of our new jobs in recent years, and they are driving our nation's economic recovery by taking risks to turn their ideas into products. Let's help build the next generation of American manufacturing by investing in American innovators with the Startup Innovation Credit Act."
"The Startup Innovation Credit is a common-sense, bipartisan bill that will encourage small and startup businesses to take risks and invest in research and development -- in turn, helping to put more Americans back to work," Senator Blunt said. "Job creators in Missouri and across America need more certainty to do what they do best -- create, innovate, and lead. This is a step in the right direction as we work together to boost economic growth and job creation at a critical time."
"When startup businesses can keep more of their hard-earned cash, they're able to create the jobs our recovering economy needs," Senator Enzi said. "This bill provides a great addition to the current R&D tax credit by helping small businesses stay afloat during their early years."
"Start-up companies are the job-creating engines of our country's future, but they face immense challenges getting their businesses off the ground to the point of profitability. As the R&D Tax Credit exists now, these emerging companies are behind the eight ball, without access to the same job-producing programs that already-established companies enjoy," Senator Schumer said. "This bill will make sure start-ups in New York and throughout the country can devote more resources to innovation and creating jobs."
Senators Enzi and Schumer are members of the Senate Finance Committee, and Reps. Gerlach and Kind are members of the House Ways and Means Committee, which have jurisdiction over tax policy in Congress.
"Startup companies embody the very essence of America's entrepreneurial spirit, and we need them to thrive in order to create job opportunities for our people," Senator Rubio said. "By using the R&D tax credit, startups will be able to invest more money in their ideas that can lead to significant job creation."
"Effective research and development allows America to out-compete and out-innovate the competition," Senator Stabenow said. "New start-ups are driving our economic recovery and this bill will help them create and produce even more cutting-edge products and technologies." Senator Stabenow is chair of the Senate Manufacturing Caucus.
"Our first priority in Congress must be to strengthen the economy so more jobs can be created and more Americans can get back to work," Senator Moran said. "Between 1980 and 2005, businesses less than five years old accounted for nearly all of the net new jobs created in America. I am glad to join Senator Coons in reintroducing the Startup Innovation Credit Act, which is designed to free up resources to help these young companies grow and create jobs. This R&D credit is an important piece of our Startup Act 2.0 plan, which will remove barriers to growth so entrepreneurs can create more companies and hire more workers."
Research and development is the cornerstone of any competitive company, institution, or country, and while the Research & Development Tax Credit has proven essential to American innovators, it does not currently help startups. According to the Government Accountability Office, more than half of the credit claimed by companies each year goes to firms with $1 billion or more in receipts.
To qualify for the Startup Innovation Credit, a company must be less than five years old and have less than $5 million in gross receipts. Since many young companies invest heavily in research and development in their first few years and don't have income tax liability, they are unable to claim a federal income tax credit, like the R&D Tax Credit. With the Startup Innovation Credit, a startup company that lacks the income tax liability necessary to claim the R&D Tax Credit can instead claim the credit in the following year by reducing its employer-side employment taxes by an equivalent amount up to $250,000.
"R&D is the principal way industry creates knowledge that can be commercialized into economically valuable products and services, and the R&D tax credit is a key way the federal government supports private-sector R&D activities," Dr. Robert Atkinson, president and founder of the Information Technology and Innovation Foundation said. "The Startup Innovation Credit addresses a key weakness of the current tax credit. During their initial years of existence, small start-up companies trying to innovate and bring new ideas to market don't yet have tax liabilities. As a result, small, emerging firms don't have access to the R&D tax credit at a time when it would benefit most, potentially being the difference between success and failure. The Startup Innovation Credit is a practical change to spur more U.S.-based innovation and job growth in key industries like clean energy and information technology."
The full text of the legislation can be downloaded here: http://coons.senate.gov/download/startup-innovation-credit