Congress still needs to meld different editions of a proposed tax overhaul, but one version is causing worry among metro Atlanta’s technology companies.
A combination of clauses in the bill passed by the Senate virtually eliminate much of the current tax incentives for research.
The bill sets a new, lower tax rate — and then does not permit companies to reduce it by claiming tax breaks. The bill also would force companies to deduct research spending over five years, instead of one.
“All of these provisions are creating a disincentive to companies doing research and development,” said Mitchell Kopelman, partner with Aprio, an Atlanta-based accounting firm.
It’s too early to say if a final tax law will include the changes, but that chance is high enough to snag the attention of people in Atlanta’s tech sector.
Anything that undermines research is a problem, said Larry Williams, chief executive of the Technology Association of Georgia. “Research and development, whether it’s in-house or in partnership with other institutions, is one of the greatest generators of innovation. And innovation is one of the greatest generators of jobs.”
Metro Atlanta’s tech sector has surged in the past decade, adding companies in cyber-security, financial tech, health tech and mobile communications.
That growth is nurtured by research in the area’s universities, as well as by private companies, Williams said. “Research and development has helped start and build industries here in Georgia. These things don’t happen in a vacuum.”
The research and development tax credit is among the largest tax breaks, worth more than $100 million over the next decade, according to the Treasury Department. That credit, created in 1981, is used by companies to lower their tax payment.
The ceiling for corporate taxes is currently 35 percent. But there’s also a floor, which is set at 20 percent. The Senate bill would lower the top corporate tax to 20 percent. A tax break for research and development could not be used to lower a company’s taxes beyond that.
If the bill is not rewritten to include incentives to research, the result could be less innovation – and potentially less profit.
“I think most small business owners would like to see tax cuts, but they would like to see it done responsibly,” said Andy Murphy, a partner at GENCapital, an Atlanta-based investment adviser.
“If it does affect what the company’s margins are, that potentially could hurt shareholder value.”
While many business interests supported lower taxes, the elimination of the research and development incentive seemed to come as a surprise. Over the weekend, some of the largest tech companies sent their lobbyists into action, hoping to undo the damage – without getting in the way of tax cuts.
Leading the charge, according to The Wall Street Journal, was the Information Technology Industry Council, whose members include Amazon, Apple and Alphabet – the parent company of Google.
Michael E. Kanell, the AJC's economics writer, has been reporting on jobs, housing and the economy at the AJC for nearly two decades. He has appeared on television and radio to analyze and report on business and economic developments.