August 4, 2008

Measure Will Allow Companies to Redeem Earned but Unusable Tax Credits for Cash
President Bush has signed multi-billion dollar legislation addressing the nation's mortgage and housing crises that also contains an economic stimulus jolt for the biotechnology industry.

H.R. 3221 - inked by the President in an Oval Office ceremony and meant to ease foreclosure fears spurred by collapse of mortgage-related sectors - contains an MBC and BIO supported tax provision which will allow companies to expedite use of their R&D and AMT credits in lieu of the bonus depreciation utilized by other industries with different business models.

Specifically, the bill allows biotechnology companies making new capital investments during much of 2008 in qualifying laboratory equipment and software, or those gearing up for commercialization, to be able to receive from the government a "refundable" tax credit (i.e., the amount of the credit will be refunded to the company, even if it is not paying taxes as it is in a "loss" position). The bill's passage comes at a time when a severe capital crunch in the financial markets is threatening to put the brakes on biotechnology innovation. (Description of bill's provisions can be found on sidebar; final regulations to be issued by Dept. of Treasury.)

"This is a bonus and a benefit for the Massachusetts biotechnology industry on multiple fronts," MBC President Robert Coughlin said. "First and foremost, it rewards the good economic behavior of biotech companies which earn significant tax credits for their investments but have no taxable income against which to apply these credits." Coughlin continued, "Additionally, for the first time Congress has acknowledged that R&D-intensive biotechnology companies should be able to redeem hard earned but unused tax credits for working capital so that they may accelerate the discovery and development of new innovative products."

The ability to use R&D credits is doubly beneficial for biotechnology because the tax code generally requires a company to use its accumulated Net Operating Losses (NOLs) before its tax credits can be claimed. As a result, R&D credits will sometimes expire before they can be utilized. The provision not only allows companies to accelerate the date when they can claim their R&D credits, it also allows them to claim credits that might otherwise expire under existing tax law.

Numerous Massachusetts biotechnology companies are expected to take advantage of what will be for now a one-time cash benefit and to reinvest that capital into the Massachusetts economy. MBC President Coughlin noted that Massachusetts Senator John Kerry and Congressman Richard Neal (D - Springfield) are key players on the budget writing committees that preserved the biotechnology tax benefit measure within the larger housing measured as it moved through the legislative process. "We want to thank Senator Kerry and Congressman Neal for their work on this bill, and of course we thank the entire delegation for voting in its favor," said Coughlin.

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