House lawmakers on May 20 approved legislation, the American Research and Competitiveness Bill of 2015 (HR 880), to simplify and make permanent the research tax credit. The final vote was 274 to 145.
The House bill provides no revenue offsets, however, and President Obama has promised to veto the measure, which is estimated to add $180 billion to the federal deficit over the next 10 years. In a Statement of Administration Policy, the White House said the administration supports “enhancing, simplifying, and making permanent” the credit, and offsetting the cost by closing tax loopholes. “The administration wants to work with Congress to make progress on measures that strengthen the economy and help middle-class families, including pro-growth business tax reform. However, HR 880 represents the wrong approach,” the White House said.
House Ways and Means Committee ranking member Sander Levin, D-Mich., said in a floor speech before the vote that the bill “continues a helter-skelter approach toward tax extenders, without any regard whatsoever for paying the hundreds of billions of dollars they cost to make permanent.”
The bill would make permanent the alternative simplified method for calculating the research tax credit and increases the rate to 20 percent. That is, the research credit is equal to 20 percent of qualified research expenses that exceed 50 percent of the average qualified research expenses for the three preceding tax years. The rate is reduced to 10 percent if a taxpayer has no qualified research expenses in any one of the three preceding tax years. The provision repeals the traditional 20-percent research credit calculation method. The measure also would make permanent the basic research credit and the energy research credit—both with credit rates of 20-percent—and changes the base period for the basic research credit from a fixed period to a three-year rolling average.
The bill also provides that, in the case of an eligible small business, as defined in Code Sec. 38(c)(5)(C), the research credit determined under Code Sec. 41 for tax years beginning after December 31, 2014 is a specified credit. Thus, the research credits of an eligible small business may offset both regular and Alternative Minimum Tax liability.
The bill would s generally effective for tax years beginning after December 31, 2014. The provision to make the research credit permanent applies to amounts paid or incurred after December 31, 2014.
By Jeff Carlson, Wolters Kluwer News Staff