U.S. Senator Kirsten Gillibrand announced a new proposal to spur innovation and job creation through the simplification, expansion, and make permanent the Research and Development (R&D) Tax Credit. Per Sen. Gillibrand’s Press Release on January 28th, expanding the R&D Tax Credit would create more than 162,000 jobs nationwide, according to the Information Technology and Innovation Foundation. More than four-fifths of the cost of the credit is spent directly on wages for researchers. Senator Gillibrand’s proposal would not only create R&D-based jobs, it would encourage companies to plan for the future, investing in new ways to streamline their processes and upgrade their products.
Senator Gillibrand’s proposal would:
- Expand the current credit by changing the formula to provide greater incentive for companies to increase investment. Note: While no specifics were provided, we assume this will be an increase in the credit percentage.
- Simplify the current credit, which is highly complicated and confusing. Note: This may involve simplifying the base year calculation or may be focused on providing additional clarity on the regulations.
- Make the new credit permanent, which would provide private companies with the confidence they need to make significant future investments in R&D. Note: We like this.
This is a welcome proposal, although the details are short on specifics, directionally it is very encouraging. Other promising aspects that could make this a reality:
- President Obama has historically indicated he was in favor of a permanent tax credit
- “Innovation” was a large part of the President’s State of the Union address
- Sen. Gillibrand is a Democrat, which could make this a bipartisan working opportunity, where the provision of a tax credit to encourage innovation, may fly under the “investment/spending” radar
As most of you are aware, the R&D Tax Credit is an important component to many industries and in particular the Electric Utility industry. BCP has long proposed for our clients to institute an upfront planning process that more directly involves tax departments in with its engineering and project management staff to identify potential R&D projects and facilitate better, more contemporaneous record keeping of R&D activities. We agree with Sen. Gillibrand that making permanent the R&D Tax Credit will create more companies such as yours to allocate additional front-end resources to identifying and claiming the R&D benefit.