2014 R&D Credit Expired And Was Pegged to Income Taxes, Start-Ups in Rochester Don’t Have Same Opportunities to Use Program; Schumer-Roberts-Coons Secured Legislation In Must-Pass Tax bill Would Make R&D Credit Permanent With Provision to Allow Startup Companies to Claim Tax Credit Against Payrolls Taxes As Opposed to Income Taxes

Schumer Legislation Would be Boost for High-Tech Rochester, New Downtown Innovation Zone, New Photonics Companies, Efforts to Grow Businesses and Commercialize Rochester Research

Schumer: If We Want Our Startups to Succeed, We Need to Ensure they Have Access to the Same Incentives as Established Companies

U.S. Senator Charles E. Schumer championed legislation that was included in the just-unveiled, must-pass “tax extenders” package, the Protecting Americans From Tax Hikes Act of 2015. Schumer said this would reinstate and permanently extend the Research and Development Tax Credit while allowing allow startup companies to gain access to research and development, R&D, tax credits that previously only existed for companies with already established revenue streams. The Schumer sponsored Innovators Job Creation Act of 2015 would allow small emerging companies to claim R&D tax credits against their payroll tax liability, employer paid FICA taxes, instead of their income tax liability. Requiring new companies with little to no income tax liability to take tax credits against this income tax liability severely restricts the ability of newly formed companies from accessing this vital small business jobs program. The R&D Tax Credit is intended to spur companies spending on job-growing research. Schumer said this bipartisan legislation, introduced with Senators Roberts and Coons, would be a boon to efforts by High Tech Rochester (HTR) to foster start-up companies in Rochester in the Downtown Innovation Zone and at the forthcoming HTR high tech business incubator, the Rochester’s Finger Lakes Business Accelerator Cooperative at the Sibley Building. 

“The Research and Development Tax Credit should be a permanent, reliable asset for startup and established businesses alike. The expired R&D Tax Credit program, put startup companies behind the eight ball, without access to the same job-producing program that already established and profitable companies enjoyed. This bill – which is now included in the tax extenders package – would allow startups in the Rochester-Finger Lakes region and throughout the country can devote more resources to innovation and creating jobs,” said Schumer. “I am urging my colleagues on both sides of the aisle and in both chambers of Congress to vote for this bill so we can send this to the President’s desk immediately.

In Schumer’s legislation, to qualify for the Startup Innovation Credit, a company must be less than five years old and have less than $5 million in gross receipts. Since many young companies invest heavily in research and development in their first few years and don’t have income tax liability, they are unable to claim a federal income tax credit, like the R&D Tax Credit. With the Startup Innovation Credit, a startup company that lacks the income tax liability necessary to claim the R&D Tax Credit can instead claim the credit in the following year by reducing its employer-side payroll taxes by an equivalent amount up to $250,000.

Additionally, Schumer said the lack of permanence for the R&D Credit is a concern for many businesses that have R&D projects with planning horizons that extend beyond a year or two. The R&D Credit has been extender on a temporary basis by Congress 16 times. Schumer said businesses should not have to count on these extensions to plan ahead. The tax extenders package would make the R&D Credit, with Schumer’s expansion for startup businesses, a permanent part of the tax code. This would incentivize small and large businesses to plan for long-term R&D, the lifeblood of innovation and long-term growth.

High Tech Rochester assists to develop entrepreneurs and new start-up companies that stand to benefit greatly from this legislation. In particular, HTR is creating a new high tech business incubator facility at the Sibley Building in downtown Rochester which will anchor the new Downtown Innovation Zone to help attract and grow new start-up ventures to set up shop in Rochester. 

The Innovators Job Creation Act of 2015 included in the Protecting Americans From Tax Hikes Act of 2015 would do the following:

  • Enable startup firms to claim the R&D credit, by claiming against their payroll taxes. Many start-up companies cannot access the R&D credit because they do not have income tax liability. This provision would allow start-ups, companies that have less than $5M in gross receipts and have not been in business for longer than 5 years, to claim the R&D credit against their payroll tax liability (i.e. FICA taxes). The benefit is capped at $250,000 per year.
  • Allow the R&D Credit to be claimed against the Alternative Minimum Tax. Even if a company is entitled to the R&D credit, many pass-through entities cannot claim it because the R&D credit cannot be used against the Alternative Minimum Tax (AMT). Eight out of 10 businesses that would otherwise benefit from taking the R&D credit will receive little to no benefit because of the AMT. This provision would, beginning in 2016, allow eligible small businesses ($50 million or less in gross receipts) to claim the R&D credit against their alternative minimum tax (AMT) liability.


Previous Article Next Article