OUR THOUGHTS ON:

Senators Propose Increase to Research & Development Tax Credit for U.S. Manufacturers

Manufacturing|Tax

By John Kohler

On June 6, 2017, Senators Chris Coons (D-DE) and Pat Roberts (R-KS) introduced the Invent and Manufacture in America Act (Act) in the Senate.  The Act looks to increase the amount of Research & Development (R&D) tax credit available to companies that not only conduct R&D activities domestically, but also manufacture products domestically.  This Act would apply to expenditures paid or incurred in taxable years beginning after December 31, 2017. 

Under I.R.C. §41, taxpayers are able to create a tax credit of up to 20% (utilizing the regular credit) or 14% credit (utilizing the Alternative Simplified credit) of an increase in R&D expenditures over a period of time.  The Act will incrementally increase this credit up to 25% for the regular credit and up to 17.5% for the Alternative Simplified Credit.  This Act does not change the calculation of the credit or the expenditures that qualify for the R&D tax credit. 

To qualify for the increased credit, a taxpayer must have domestic production gross receipts (DPGR), as defined in I.R.C. §199(c) (4), greater than 50% of their total gross receipts.  The additional R&D credit available would be graduated based on the taxpayer's DPGR, illustrated as follows:  

DPGR relative to Total Revenue

Regular Credit

Alternative Simplified Credit

>50% - 60%

21%

14.7%

>60% - 70%

22%

15.4%

>70% - 80%

23%

16.1%

>80% - 90%

24%

16.8%

>90%

25%

17.5%

This Act was referred to the Senate's committee on Finance.  SD will continue to monitor the Act as it progresses through the Senate. 

For more information on this act and its potential impact to your manufacturing business, contact us.  

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