U.S. Senators Chris Coons (D-Del.) and Mike Enzi (R-Wyo.) introduced legislation on Tuesday 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. Cosponsored by Senators Chuck Schumer (D-N.Y.) and Marco Rubio (R-Fla.), the Startup Innovation Credit Act of 2012 allows qualifying companies to claim the R&D Tax Credit against their employment taxes instead of their income taxes. Rep. Jim Gerlach (R-PA-6) will introduce companion legislation in the House of Representatives later this week.
"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," Senator Coons said. "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 marketable products. Let's help build the next generation of American manufacturing by investing in American innovators with the Startup Innovation Credit Act."
"Research and development is at the heart of startup businesses with big aspirations," Senator Enzi said. "By allowing our job creators to keep more of their hard-earned cash through the startup R&D tax credit, they can focus on creating the good-paying, high value jobs our economy needs."
Senators Enzi and Schumer are members of the Senate Finance Committee, and Rep. Gerlach is a member of the House Ways and Means Committee, which have jurisdiction over tax policy in Congress.
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 payroll taxes by an equivalent amount up to $250,000.
"Over the last two years, I've talked with dozens of business leaders and experts in tax policy to refine the Startup Innovation Credit and ensure it is as smart as the innovators we're trying to help," Senator Coons said. "The bipartisan bill we're introducing today can make a real difference in the next generation of American manufacturing."
"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."
"Research and development are essential ingredients for making American companies competitive in the global marketplace," Rich Heffron, interim president of the Delaware State Chamber of Commerce said. "The Startup Innovation Credit is an imaginative plan for providing entrepreneurs the means to create jobs while their company is still in its infancy. The companies that will make use of this program will be among those leading our country's economic resurgence. The members of the Delaware State Chamber of Commerce urge Congress to quickly move this legislation to the President's desk."
"The Startup Innovation Credit will create jobs and speed up innovation, helping early-stage companies like many of those that belong to Delaware Bio," Bob Dayton, president of Delaware Bio said. "Startups that are investing in innovation have enormous potential to grow and create jobs, and the Startup Innovation Credit is a creative way to help nurture that potential when it will have the greatest impact."
"DeNovix, Inc. is a Delaware-based small company developing instrumentation for bio-research," Kevin Kelley, business director of DeNovix said. "Our team includes molecular biologists and engineering professionals. The proposed legislation would allow our company to offset some of the costs of bringing new, innovative, technology-based products to market. We support the efforts of the senators who are drafting the bill."