A provision in the 2017 Tax Cuts and Jobs Act that changes the way Research and Development (R&D) investments are taxed has taken effect for the 2022 tax year, meaning huge changes for R&D focused companies. These changes mean that companies will now have significant tax liabilities for R&D expenses and for any federal dollars awarded to the company where there previously was none. Historically, this tax provision allowed research-intensive companies without products on the market, and therefore income, to focus purely on their research. Most California biotech companies are pre-revenue and use private funding or public grants to invest heavily in R&D in the hopes of finding a treatment or cure. Many are now considering bankruptcy.
Please help us protect R&D by sending the below letter to your Member of Congress, urging them to support efforts to restore the R&D tax credit before it's too late.
Dear [Representative Name],
I write to you today to urge you to cosponsor the American Innovation and R&D Competitiveness Act (H.R. 2673)/American Innovation and Jobs Act (S. 866).
These bipartisan bills are vital to restoring the ability of research companies to deduct their research and development (R&D) expenses in the year they were incurred. In 2022, Sec. 174 of the 2017 Tax Cuts and Jobs Act (TCJA) took effect, requiring companies to amortize their R&D expenses over five years. This ill-conceived tax change is having a devastating impact on our small to mid-size companies.
Historically, this tax provision had allowed research-intensive companies without products on the market, and therefore income, to focus purely on their research. Most California biotech companies are pre-revenue and use private funding or public grants to invest heavily in R&D in the hopes of finding a treatment or cure.
Instead of being able to deduct the entirety of their grant funding, small companies can now deduct only 10 percent in the first year and must pay taxes on the rest which is treated as taxable "income".
As a result, small companies' tax liabilities have gone from zero to tens of thousands of dollars overnight. With no revenue stream, many of California's most innovative research companies are on the verge of bankruptcy.
Reversing this harmful tax provision is existential for many research companies in California and across the country. If they disappear, years of research and millions of dollars in investment will be lost and hope will be taken away from patients across many disease areas.
We urge you to support restoring the ability of companies to deduct their R&D expenses in the year they were incurred by cosponsoring H.R. 2673 or S. 866 and urging leadership to advance legislation to the floor.
[ Your name]