Mike Cote's Business Editor's Notebook: Businesses are leaving R&D money on the table
A bill that would double the state's research and development credit for businesses passed the Senate last week with 23 votes. If passed by the House, it would increase the tax credits available from $1 million to $2 million and also make the credits permanent.
The available credit would still lag far behind demand - companies applied for more than $4 million in credit last year and received about 24 percent of what they sought, according to Union Leader State House Bureau Staff Writer Garry Rayno.
But it's a step in the right direction for New Hampshire to remain competitive, says Dean Zerbe, national managing director at alliantgroup, a national company that helps manufacturers, architects, engineers, software developers and other businesses take advantage of state and federal tax credits.
While New Hampshire's R&D tax credit may serve as an incentive to attract new business and support existing ones, many companies don't realize they're candidates for such funding, especially at the federal level, Zerbe says.
"The problem you have in New Hampshire and elsewhere is one out of 20 small to medium businesses don't even take advantage of the federal R&D credit," he says. "The way to think about the R&D credit is it's more about applied science."
Zerbe spends his time counseling companies about tax credit programs and how they can use them to grow their business.
"The biggest problem is companies don't think they are eligible for it. They think they need to be practicing Swedish for their speech before the Nobel Prize committee to get the credit," Zerbe says. "At the federal level, it's a $10 billion a year credit. It's the biggest credit out there."
And it's the way the Fords and the GEs of the world fund much of their R&D work.
"We hear a lot about them not paying a lot in tax, and there are a lot of reasons behind that and a lot of things they do, but I'll tell you a tent pole of it is the R&D credit," Zerbe says. "But for some reason, the small and mediums just don't think they are eligible."
Companies that design, develop or improve products, processes, techniques, formulas, inventions or software could be eligible for the federal R&D credit. While the New Hampshire R&D credit only covers wages, the federal credit can also? be used to cover supplies and services.
"The nice thing for the small and mediums is it's very helpful for them in terms of helping them buy new equipment, hiring an additional person or keeping the doors open," Zerbe says. "We've seen it very helpful in that regard, keeping jobs and keeping particularly good-paying jobs in the state. That's what we've seen and experienced at the state level. That's why the trend has been to expand the credit."
Thirty-eight states have some form of an R&D tax credit. Several, such as Minnesota, offer refundable credits, which means if the tax credits exceed the tax liability, the state issues a refund payment. Businesses in Minnesota don't need income tax liability or revenue to claim the credit, as long as they have qualified research and development expenditures.
"That's where you can help startups because startups don't have a profit so they can't take advantage of the credit," Zerbe says.
Gov. Maggie Hassan, as part of her lobbying effort to expand the credit in New Hampshire, recently visited Nanocomp Technologies in Merrimack, spotlighting the producer of carbon-based advanced materials as the type of business that could benefit from increased R&D funding. But President and CEO Peter Antoinette acknowledged during the visit that the tax credit would more feasible for the company in about 18 months, when he expects the company to become profitable.
"Basically, at the end of the day, it's going to be easier for small- and medium-sized businesses to take advantage of the R&D tax credit at the federal level," Zerbe says. "The icing on the cake is to have this at the state level as well, too. I think it's a good start for New Hampshire."
When we caught up with him, Zerbe was on his way to talk with business people in Louisiana, which has a refundable R&D tax credit.
"It does matter for these companies - $30,000, $50,000, $70,000. It can really make a difference for these companies," he says. "I've seen this first-hand."
Mike Cote is business editor at the Union Leader. Contact him at 668-4321, ext. 324 or email@example.com.
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