NE Florida News

U.S. Congressman Aaron Bean of Florida and Congressman Chris Pappas of New Hampshire, both members of the House Small Business Committee, have sent a letter to House leadership urging a reversal of tax code changes that have placed a heavy burden on small businesses investing in research and development (R&D). The letter emphasizes the importance of restoring the ability of businesses and startups to fully deduct their R&D expenses each year.

The lawmakers highlight the significant role small businesses play in driving innovation across various industries, such as breweries, manufacturers, and farms. According to the Small Business Administration, businesses with between 10 and 499 employees invested $71 billion in R&D development in 2019. Small businesses also employ over 500,000 workers focused on R&D and allocate a significant portion of their sales to innovation efforts.

The Tax Cuts and Jobs Act of 2017 amended the Internal Revenue Code Section 174, requiring R&D expenses to be amortized over five years instead of being deducted within the same tax year. These changes came into effect in the 2022 tax year, resulting in substantial tax increases for small businesses at the forefront of innovation. Even businesses that did not generate profits in 2022 are now facing significant tax bills under the new tax structure.

The impact of these changes has been particularly harsh on small- and medium-sized firms. Examples include an engineering business in New Hampshire whose tax liability has more than doubled, a Midwest dairy farm, a Missouri steel fabrication company with 120 employees, and a small manufacturing business in Minnesota, all experiencing tax hikes in the hundreds of thousands of dollars.

While federal investments like the CHIPS and Science Act and the Inflation Reduction Act aim to support the manufacturing and technology sectors, the current tax code hinders businesses from fully utilizing R&D incentives. The United States stands out as one of the few peer countries that do not allow for the expensing of R&D, with China allowing a 200% deduction of these expenses.

Innovation is crucial for building a competitive economy that benefits everyone. It reduces costs for consumers, increases worker productivity, and fosters business growth. Penalizing small businesses for investing in critical research and innovation contradicts the spirit of entrepreneurship and risks hampering innovation. The previous policy, which allowed for immediate expensing of all R&D expenditures in the year accrued, spanned 70 years of prior law. Returning to this policy would significantly alleviate the tax burden faced by small businesses and incentivize entrepreneurial risk-taking and innovation, essential for the growth of the economy.

To address these concerns, Congressman Bean and Congressman Pappas express their support for H.R. 2673, the bipartisan American Innovation and R&D Competitiveness Act. This legislation seeks to eliminate the five-year amortization requirement for research and experimental expenditures, enabling businesses to expense these costs in the taxable years they were incurred. The lawmakers urge House leadership to prioritize bringing this legislation to the floor before this year's tax season, providing small businesses with much-needed certainty.

The congressmen conclude their letter by thanking House leadership for their attention to this urgent matter and expressing their anticipation of a prompt response. The call for a vote on the small business tax fix is a step towards ensuring that small businesses can thrive and contribute to the nation's economy through continued innovation and growth.

To find out more, go to this link: https://bean.house.gov/media/press-releases/bean-joins-pappas-call-vote-small-business-tax-fix