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On Tuesday, the House Ways and Means Committee approved six tax extender provisions and left 50 more on the chopping block. It’s unclear if the committee will reconvene to review the other 50, but in keeping with the desire of Rep. Dave Camp (R-Mich.) to bring certainty to the tax code, yesterday’s action would make the six extenders that did pass permanent. The extenders currently have expiration dates, which most agree hamper their effectiveness, so those supporting the six provisions cleared by the committee will likely approve making these provisions permanent. Of course, the various groups and industries supporting the approximately 50 other provisions that failed to make the cut will surely disagree.
In contrast to the Ways and Means Committee, the Senate Finance Committee reported last month they would extend the full range of tax extenders — many of which expired at the end of 2013 — for only two years, through 2015. This sets up a philosophical divide between the chambers: Is the business community better served by a more permanent tax code, if the tradeoff is the elimination of a substantial number of the traditional tax extenders?
Bills That Affect Our Industry
Two popular tax extender provisions supported by CompTIA and TechVoice are included in both the House and Senate tax bills:
Research and Experimentation Tax Credit (R&D Tax Credit). The House version would make the R&D tax credit permanent, bringing certainty to businesses that need time for long-term research and experimentation. Since its enactment in 1981, this back-and-forth political football has been widely criticized as detrimental to the spirit of the R&D tax credit because companies have been unable to conduct long-term research and experimentation planning based on the availability of the credit. The Senate version would extend the credit for only two years, through 2015, but with an important enhancement: The Senate bill would permit small startup businesses to offset the credit against that company’s payroll tax liability — an important distinction for small startups, which typically do not have federal income tax liability in the early years against which to offset the R&D tax credit. Clearly, the R&D tax credit should be made permanent as provided by the pending House legislation. We also support the Senate enhancement that allows small startups to receive the benefit of the credit through a payroll tax offset.
Small Business Expensing —IRC sec. 179. This provision, popular with all small businesses, allows a business to write off the costs of qualifying asset purchases in the year of purchase, as opposed to depreciating the costs over a period of years. For the tax years 2011 through 2013, the maximum write-off was limited to $500,000, with certain phase-out requirements. However, for 2014, the limitation has dropped to back to $25,000. The Senate bill would extend the $500,000 limitation through 2015. However, the House version would make the higher $500,000 limitation permanent. Clearly, this important provision should be made permanent at the $500,000 level, and has been consistently supported by CompTIA and TechVoice.
Unfortunately, the House failed to address two other important tax extenders:
Bonus Depreciation. In an effort to encourage investment, the bonus depreciation provision would allow companies to write off additional depreciation for certain equipment purchases. The House Ways and Means Committee did not address this issue. In contrast, the Senate version would extend 50 percent bonus depreciation for qualified property purchased and placed in service before 2016. We believe bonus depreciation supports businesses investing in new and more efficient equipment and technologies helping these businesses to grow and add jobs. This, in turn, boosts the entire American economy. Accordingly, we support the permanent extension of this provision.
Qualified Small Business Stock. This provision encourages investment in small businesses by allowing individual investors to exclude gains from the sale of small business stock held for more than five years. The Senate bill would continue to allow a 100 percent exclusion of the gain from qualifying small stock, but only for stock purchased before 2016. The House Ways and Means version does not include this important provision. Access to capital continues to be a major issue for small businesses, and we believe this incentive should also be made permanent.
What happens next is uncertain. Ways and Means could reconvene to consider additional provisions before finalizing legislation for consideration by the full House, and the Senate Finance version has yet to be considered by the full Senate. At this point, most do not expect final legislative action on the extenders to play out until after November’s midterm elections. For now, we are pleased that both chambers recognize the importance of both the research and experimentation tax credit and the section 179 small business expensing, although tweaks should be made to make the R&D tax credit more relevant to small startups.
Lamar Whitman is director of public advocacy for CompTIA.