IT Vendors Push For Quick Extension Of Expiring R&D Tax CreditIT Vendors Push For Quick Extension Of Expiring R&D Tax Credit

Businesses in the United States will no longer be eligible to receive tax credits for expenses related to research and develop as of midnight Wednesday, when the federal R&D tax credit is scheduled to expire.

Both houses of Congress have passed legislation that would extend the tax credit until Dec. 31, 2005, but differences in each chamber's version of the bill need to be resolved before final legislation can be presented to the White House for the president's signature. Congressional aides say a House-Senate conference committee has not yet been appointed to consider the bills.

IT industry lobbyists say a lengthy delay in enacting the extension could create problems for hardware and software makers. "As we get later into the year, it creates more uncertainty and makes it more difficult for businesses to budget research projects for the following year," says Bartlett Cleland, VP and tax counsel at the Information Technology Association of America, an industry group of IT vendors, including IBM, Hewlett-Packard, and Microsoft. Cleland says it's not yet clear whether the legislation would apply retroactively to July 1 when enacted.

Under the existing plan, businesses can claim a tax credit for up to 20% of spending increases related to research and development conducted within the United States. Cleland says an ITAA survey revealed that 50% of the group's members would have moved at least some of the R&D efforts they conduct in the United States--projects ranging in cost from $10 million to $100 million--offshore had the credit not been in place.

The House version of the extension is contained in the American Jobs Creation Act, which passed on June 17. The Senate version is included in the Jumpstart Our Business Strength Act, approved in May. President Bush has been pushing for a permanent R&D tax credit but hasn't mustered sufficient support in Congress. Democratic presidential candidate Sen. John Kerry has said he favors extending the tax credit.