By Stephen Phillips
US high-tech companies pulled off a major legislative coup last Friday when Congress voted to guarantee tax relief on R&D for five years – the longest-ever extension of the hitherto annually- renewed federal bill. However in a compromise struck amid an anticipated US federal budget surplus, firms must wait one year – until the surplus swells – before claiming the tax credit.
Hardware, software and telecommunications companies, among the US’s biggest spenders on R&D, had watched the political passage of the tax write-off renewal with unease as it became entangled in party politics. The credit, which offsets the cost of developing new products, had been tacked onto a $792bn tax cut bill proposed by the Republican Party, which President Clinton vetoed in September.
Last week’s decision is the culmination of weeks of anxious lobbying by the high-tech industry, which already this year has paid out $3.8m in political contributions – more than twice the sum contributed for the equivalent period last year, figures from the non-partisan Center for Responsive Politics reveal. The R&D tax credit was part of a $15bn bill to extend several expiring tax provisions, approved last Wednesday by the Senate Finance Committee and the House of Representatives Ways and Means Committee. Rank-and-file members of the House of Representative and Senate voted to pass the legislation on Thursday and Friday, respectively. The bill is now with the President for rubber- stamping, which observers say is a formality.
Although no one seriously expected the R&D tax credit to be thrown out, there was concern that in line with previous practice it would be limited to a one-year extension. Several sources said last week that the US government had fought to limit the extension to two years in a bid to keep costs down before it being persuaded to accept five years.
One of the most prominent lobby groups for the industry in Washington is the Information Technology Industry Council, which represents 29 companies, including Microsoft Corp, IBM Corp, Intel Corp and Cisco Systems Inc. Connie Correl, communications director at ITIC told ComputerWire that the new bill will give high-tech companies breathing space to plan R&D with more certainty. Correl said ITIC is pressing Congress to grant permanent R&D tax relief before the write-off comes up for renewal in 2004. However she added that previous tax credit extensions for other activities had tended to be limited to a maximum of ten years.
