This week, the House of Representatives passed the American Research and Competitiveness Act of 2015 by a 274 to 145 vote. The $182 billion research & development (R&D) legislation, introduced by Congressman Kevin Brady (R-Texas), would amend the Internal Revenue Code to make permanent a modified version of the tax credit for qualified research expenses, retroactive to December 31, 2014, when the credit expired.
The Act increases the easier-to-use alternative simplified credit from 14 percent to 20 percent. In addition, the measure does not extend the traditional calculation method and its associated 20 percent credit. It would, however, make permanent the “alternative simplified method” for calculating the tax credit for qualified research expenses and generally increase the associated credit to 20 percent of those expenses that exceed 50 percent of the average qualified research expenses for the three preceding taxable years.
The R&D credit is part of a group of temporary tax breaks known as “tax extenders.” In December, Congress retroactively renewed more than 50 provisions for the 2014 tax year, but the tax breaks remain expired for 2015. Since it was introduced in 1981, the credit has been extended 16 times and has been allowed to expire nine times. When it has expired, the credit has almost always been retroactively reinstated to provide continued benefits to taxpayers. House Republicans introduced and passed a series of bills making permanent small groups of “tax extenders” in early 2015 over Democrats' objections and a White House veto threat. The White House has threatened a similar veto to the House R&D legislation due to its cost.
Meanwhile in the Senate, legislation introduced in February by Senators Tom Carper (D-Del.) and Pat Toomey (R-Pa.) to make the R&D credit permanent awaits further action in the Finance Committee, though similar legislation failed to advance in Senate last year. The “Competitiveness and Opportunity by Modernizing and Permanently Extending the Tax Credit for Experimentation Act” (COMPETE Act) would increase the credit for qualified research expenses from 20 percent to 25 percent and allow companies undertaking research in collaboration with other companies to access the credit.
AGC continues to support a permanent and expanded federal R&D credit for construction companies that have increasing responsibilities to innovate products and processes in order to secure successful bids on potential projects. Over the years, the construction industry has moved toward using innovative construction materials to create higher-performing, more reliable, energy efficient, quality structures. Customers, architects, and engineers continue to raise the bar on innovation such as HVAC systems and large-membrane filtration systems for water treatment plants; and this drives the expectation for contractors to develop new processes and engineering solutions – activities that qualify for the R&D credit.
For more information, please contact Brian Lenihan at lenihanb@agc.org or (202) 547-4733. Return to Top