January 31, 2013
Bipartisan Startup Innovation Credit Act helps innovative startup companies access research and development tax credit
U.S. Senators Chris Coons (D-Del.) and Mike Enzi (R-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 Chuck Schumer (D-N.Y.), Marco Rubio (R-Fla.), Roy Blunt (R-Mo.), Debbie Stabenow (D-Mich.), and Jerry Moran (R-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 (R-PA-6) and Rep. Ron Kind (D-WI-3) 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.”“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.” 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, the senators said. 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.
The full text of the legislation can be downloaded here.