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R&D Tax Credits in Many States Seek to Help Business Development, Innovation

July 17, 2013

A number of states recently have taken action to expand R&D tax credits and other legislation that would support innovation, commercialization and manufacturing. Hawaii, California, Maryland, Texas, and Florida have signed into law tax incentives and R&D tax credits and an R&D tax credit in New Hampshire went into effect.  The Maine legislature also passed a capital tax credit that will begin in 2014.

In late June, the Maine Senate and House passed LD 743, which will extend the Maine Seed Capital Tax Credit. The original tax credit program was created in 1989 with a $30 million cap. This extension will provide an annual cap of $5 million in tax credits to qualifying investors, beginning in 2014. “A tax credit certificate may be issued to an investor other than a private venture fund in an amount not more than 50 percent of the amount of cash actually invested in an eligible Maine business in any calendar year,” according to the bill. The business invested in must be “a manufacturer or a producer of a value-added natural resource product.”

The New Hampshire tax credit in SB 1 took effect in late May.  SB 1 increases the limit of research and development tax credit from $1 million per fiscal year to $2 million per fiscal year. The tax credit is applied to business profit tax.

Last week in Hawaii, SB 1349, which extends through 2019 an income tax credit for qualified research activities, was signed into law. The Department of Business, Economic Development, and Tourism will monitor the tax credits and report on their use and effectiveness.

Two California bills pertaining to tax exemptions and credits have been signed by Gov. Jerry Brown. AB93 introduces a sales and use tax exemption for manufacturing and bio-technology equipment, which includes R&D equipment. There is no cap on the total amount of the credit. SB90 further extends the sales and tax use exemption established in AB93 to July 2022. The bills also include a hiring tax credit for employees who have been unemployed for at least six months, for a veteran, or those who use the federal earned income tax credit.

Other states that recently have passed tax credits include Maryland, Texas, and Florida. Maryland HB 803 (as reported in the  April 24, 2013 Digest) established the Maryland Cybersecurity Investment Tax Credit Reserve Fund and a $3 million tax credit program that would create a 33 percent tax credit for qualified investors in cybersecurity companies.  Maryland also expanded the R&D tax credit from $3 million to $8 million and the Biotechnology Tax credit from $8 million to $10 million.  HB 803 was signed by Gov. Martin O’Malley in early May.

The Texas legislature, as part of a series of bills to support research and commercialization activities, reinstated the state’s R&D tax incentive through HB 800. This incentive was in effect from 2001 to 2006, when it was repealed.  (see the May 29, 2013 Digest). Gov. Rick Perry signed the legislation into law in mid-June.

As part of the Florida FY14 budget agreement, which was signed in late May, Gov. Rick Scott won inclusion of his proposal to eliminate sales tax on manufacturing equipment (see the May 8, 2013 issue of the Digest. This exemption will run from May 2014 until May 2017.

California, Delaware, Hawaii, Maine, Maryland, New Hampshire, Texasr&d, tax credits