Eliminating the choice of two different calculation methodologies allows Congress to focus legislation on the ASC method instead of being distracted by trying to improve the traditional method. If the traditional method were to be improved by Congress, that improvement would only help a select number of companies. Whereas if Congress would drop the traditional method and focus on increasing ASC to, say, 17 percent to 20 percent, it would help every company that qualifies for the tax credit.
It is important to note that these four items are interrelated. In and of itself, eliminating the traditional method will not result in a better credit for all companies. But if the traditional method is banned (in other words, if companies had only one method to choose), the ASC percentage is increased, AMT limitations are removed and the credit is made permanent, that combination of improvements would enable the U.S. to reclaim its top position among countries offering the R&D Tax Credit.
In 2010, the last year of available data, $8.51 billion was claimed by U.S. companies using the U.S. R&D Tax Credit. Manufacturers and technology, pharmaceutical and engineering companies pour R&D Tax Credit money back into operations, hire more R&D staff, hire sales teams and continue to develop new products. To keep those companies here and to attract more companies to our shores, Congress must unshackle companies from the four constraints.
If you, as a financial executive, aren’t involved in ongoing conversations with your U.S. representative about this issue, you should be. The pace that other countries are increasing the benefits of their R&D tax credit will more than likely continue to increase, weakening our tax credit even further.
Mitchell S. Kopelman is a partner-in-charge of Habif, Arogeti & Wynne tax practice. Dawn Herman and Carli McDonald, a director and manager, respectively, of the firm’s R&D tax credit practice, also contributed to this article.