Ways and Means Committee Approves 5 Year Extension of R&D Tax Credit

(July 15, 1999) The House Ways and Means Committee approved the Financial Freedom Act on Tuesday, July 13. It includes a five year extension of the research and development tax credit, and a one percent increase in the alternative incremental research credit regime. High tech companies have long sought a permanent extension of the R&D tax credit.

The R&D tax credit has become a perennial issue in Congress. The credit was first enacted in 1981 as a temporary measure, and has been extended on eight occasions since then. Under the most recent scheme, corporations receive a 20% tax credit for qualified research and development expenditures (QREs) in excess of a calculated base amount. It expired on July 1, 1999.

The measure adopted on Tuesday by the House Ways and Means Committee, HR 2488, would not make the R&D tax credit permanent. Rather, it would again extend the tax credit -- this time for five years. It would cover the time period of July 1, 1999 through June 30, 2004. In addition, the credit rate applicable under the alternative incremental credit would be increased by one percentage point per step.

HR 2488 IH, the Financial Freedom Act, is a huge tax bill (500 KB) covering a wide variety of subjects. The R&D tax credit is found in Section 1401.

HR 2488 is sponsored by Rep. Bill Archer (R-TX), the Chairman of the House Ways and Means Committee. It is cosponsored by Representatives Phil Crane, Scott McInnis, and Rick Hill. It passed the Committee by a vote of 23 to 13.

Several bills have been introduced in the 106th Congress (including S 195, S 680, HR 760, HR 835, S 951, HR 1682, and HR 2086) that would make the credit a permanent feature of the Internal Revenue Code. However, attempts to make it permanent in the past have failed.

Rep. Bill Archer

Making the R&D tax credit permanent has long been one of the leading legislative goals of major computer and software companies, and the trade groups which represent them.

Harris Miller, President of the Information Technology Association of America (ITAA), had this to say about the Committee's action. "The high tech industry, the fuel in the engine of the 21st century economy, relies heavily on the R&D credit to invest capital into new products. We are happy that Chairman Archer and the Ways and Means Committee recognize the importance of the credit, and have included a five year extension in the Financial Freedom Act of 1999."

"Imagine, though, if you bought a house knowing that the mortgage interest deduction was only ensured for three years. You would think twice about making that purchase. Let's allow IT companies to commit to long-term research by making the credit permanent, and thereby ensuring the strength of our country's economy," said Miller.