Sens. Roberts, Coons and Schumer introduce Bill to Allow Research & Development Tax Credits for Small Businesses, Startups

Statement

U.S. Senators Pat Roberts (R-Kan.), Chris Coons (D-Del.), and Chuck Schumer (D-N.Y.) today introduced bipartisan legislation to enhance incentives for private firms to invest in research and development (R&D). The Innovators Job Creation Act would help startups and other small companies take advantage of valuable R&D tax credits that are currently unavailable to them.

"Research and development in new technologies and new products is an important source of economic growth," Senator Roberts said. "The new technologies, products, and lower prices generated by investments in R&D create new jobs, raise wages, and create new demand for goods and services. Our legislation would increase cash flow for small businesses and start-ups involved in R&D intensive activities by reducing past, current and future tax liabilities leading to permanent tax savings. This would also reduce a company's effective tax rate, increasing cash flow and improving earnings, which results in them becoming a more attractive investment."

"Research and development is the lifeblood of great American companies, turning ideas into innovations that grow businesses and create good manufacturing jobs here at home," Senator Coons said. "If we want to strengthen our manufacturing sector, we have to support innovation and entrepreneurship, particularly by startups that are creating the majority of new jobs. The Innovators Job Creation Act will make the successful R&D tax credit accessible to thousands of small firms, freeing up capital to grow during their critical early stages. We've had success pushing the Administration to adopt some of these ideas and are hopeful that this bill can continue our important work. We can win the fight for manufacturing jobs in America if we invest in our nation's inventors and innovators, and that's exactly what this bipartisan bill does."

"Today's start-up companies will provide tomorrow's jobs, so early investment in research and development is vital to ensure they can get off the ground and running. The current R&D Credit has a proven track record for already-established companies. It only makes sense that the credit be expanded so that start-ups in New York and all across the country have the same tools available to support innovation, growth and job creation," Senator Schumer said.

Start-ups typically must invest in R&D for many years before they become profitable. During this phase of their development they generally cannot use the deductions or tax credits generated by their R&D investments. As a result, start-ups need to raise a great deal of outside capital to fund their investments in new technologies and products, and may also face difficulties borrowing.

To address this, the Innovators Job Creation Act would:

Allow the R&D credit to be claimed against the Alternative Minimum Tax. Even if a company is entitled to the R&D credit, many pass-through entities cannot claim it because the R&D credit cannot be used against the Alternative Minimum Tax. Eight out of 10 businesses that would otherwise benefit from taking the R&D credit will receive little to no benefit because of the AMT. This provision was previously in the Small Business Jobs Act of 2010, but expired after one year.

Enable startup firms to claim the R&D credit, by claiming against their employment taxes. If a startup company cannot access the R&D credit because it does not have an income tax liability, it can claim the R&D credit against taxes it pays on employee wages. The benefit is capped at $250,000 per year.

Permit the Alternative Simplified Credit on Amended Returns. Currently, businesses can only claim the traditional R&D tax credit on an amended return. However, the traditional credit is outdated and costly for smaller businesses. The Alternative Simplified Credit was intended to make the calculations easier, but regulations prohibit its use on an amended return. There is nothing in statute that requires such a limitation.
The bill has been endorsed by the American Institute of Architects, American Small Manufacturers Coalition, Association for Manufacturing Technology, Biotechnology Industry Association, CompTIA, Information Technology & Innovation Foundation, Plug In America, Steve Case and the Case Foundation, Tech Collective, Technology Councils of North America, TechVoice, and the Telecommunications Industry Association.

Senators Roberts and Schumer are members of the Senate Finance Committee. Senator Coons is a member of the Senate Small Business and Entrepreneurship Committee.

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