Representatives Introduce Bills to Make R&D Tax Credit Permanent

February 3, 2003. Last week, two bills were introduced in the House to make permanent the existing research and development tax credit. Technology companies are among the strongest backers of efforts to make the R&D tax credit permanent.

On January 28, Rep. James Sensenbrenner (R-WI) introduced HR 428, an untitled bill to make permanent the R&D tax credit. On January 29, Rep. Nancy Johnson (R-CT) (at right) introduced HR 463, the Investment in America Act of 2003, a bill to make permanent the R&D tax credit, increase the rates of the alternative incremental credit, and provide an alternative simplified credit for qualified research expenses.

These will likely be just two of many bills introduced on this subject in the 108th Congress. 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 repeatedly since then. Under the current scheme, corporations receive a 20% tax credit for qualified research and development expenditures (QREs) in excess of a calculated base amount.

The Congress passed, and President Clinton signed, a bill that extends the R&D tax credit for another five years at the end of 1999. The bill was a huge collection of appropriations bills.

While numerous bills have been introduced over the years, much of the effort has focused on three versions. First, there is the Johnson version. Prior versions of this bill have included HR 835 (106th Congress) and HR 41 (107th). These bills have attracted 165 and 119 cosponsors, in the 106th and 107th Congresses, but did not become law. Sen. Orrin Hatch (R-UT) has introduced companion bills in the Senate. See, S 680 (106th) and S 41 (107th), which had 46 and 53 cosponsors, respectively.

The second variation is that proposed by Rep. Sensenbrenner. See, HR 760 (106th) and HR 1329 (107th). Sen. Barbara Boxer (D-CA) has sponsored companion legislation in the Senate. See, S 195 (106th). These bills have attracted fewer cosponsors.

A third variation is that proposed by Sen. Pete Domenici (R-NM). See, S 951 (106th) and S 515 (107th). Rep. Heather Wilson (R-NM) has sponsored companion legislation in the House. See, HR 1682 (106th) and HR 1137 (107th). These bills would make permanent the credit, change the alternative incremental credit, expand the credit to support collaborative research and development, and make it easier for small and start-up businesses to access the credit.

While the Domenici Wilson version has not attracted as many cosponsors as the Hatch Johnson version, perhaps it is significant that one of these cosponsors has been Sen. Bill Frist (R-TN), who is now the Senate Majority Leader.