High-tech companies got part of what they wanted in the budget and tax package signed by President Clinton last week: continuation of a substantial tax break on the money they spend on research and development. But they fell short of their ultimate goal: making the provision permanent.
"The software industry lives and dies by its ability to create innovative products; R&D is where the bulk of the expenses lie," said Mark Nebergal, lead counsel for the Software Publishers Association. For instance, Microsoft spent US$2.1 billion on research and development in 1996.
The Research and Experimentation Tax Credit, which has been renewed every year for the past 15 years except in 1996, is available only to companies that spend more on R&D in a given year than they did in the previous year. The break operates on a sliding scale, with companies that increase spending the most on developing new technologies from year to year getting the biggest benefit. Companies can get up to about 10 percent in tax breaks on R&D projects, Nebergal said.
But the credit doesn't come cheap. The Joint Committee on Taxation estimates that the provision will cost the Treasury US$2.2 billion in fiscal 1998. The technology industry has pushed Congress to make the R&D break permanent, but lawmakers, at least this year, did not go for it because of the provision's high cost.
"We're pleased the credit has been extended, but we're disappointed it was not made permanent," said Jon Englund, vice president of the Information Technology Association of America. "It's a long pipeline before you're actually selling products, and any gap in coverage is damaging."
