US Senate adopts R&D tax amendment in budget resolution

By Doug Connolly, MNE Tax

A bipartisan amendment relating to promoting US competitiveness and innovation through expanded tax incentives for research and development (R&D) made it into the US Senate budget resolution adopted on August 11. The amendment specifically calls for R&D support to include expanding the R&D tax credit for small businesses and preserving full expensing for R&D investments.

Proposed by Senators Maggie Hassan (D-N.H.) and Todd Young (R-Ind.), the amendment was approved during the “vote-a-rama” on the Democrats’ budget resolution framework, which set the stage for a USD 3.5 trillion partisan infrastructure bill that could pass the Senate with a simple majority. The resolution now moves to the House for consideration.

Hassan and Young had partnered earlier this year to introduce bipartisan legislation – the American Innovation and Jobs Act – to double the refundable R&D tax credit, expand the credit to more startups and small businesses, and reverse a change introduced by the 2017 tax reform (taking effect next year) that ends immediate expensing of R&D investments.

In technical terms, the resolution amendment establishes a “deficit-neutral reserve fund” for legislation in support of the described R&D initiatives, which is something of a formality of the budget resolution process as a means of flagging support for an issue. It does not incorporate specific legislative provisions.

Nonetheless, the adoption of the amendment by the Senate in the resolution, along with its introduction on bipartisan lines, indicates the continued broad support for R&D tax measures in Congress. It also suggests the initial focus of legislative proposals to come – i.e., undoing the 2017 tax law’s change to R&D expense amortization and expanding credits for small businesses.

The Biden Administration has similarly signaled its support for strengthened R&D tax measures, while noting a willingness to work with Congress on the details.