This week’s “Fiscal Cliff Bill” included some key provisions that help support biotech innovations here in Arizona.
As reported by Tim Carney, senior political columnist for the Washington Examiner:
The Family and Business Tax Cut Certainty Act of 2012, which passed through the Senate Finance Committee in August, was copied and pasted into the fiscal cliff legislation, yielding a victory for biotech companies, wind-turbine-makers, biodiesel producers, film studios — and their lobbyists. So, if you’re wondering how algae subsidies became part of a must-pass package to avert the dreaded fiscal cliff, credit the Biotechnology Industry Organization’s lobbying last summer. (Source)
Full summaries of this week’s legislation have yet to be posted, but the memo from the Senate Finance Committee in August 2012 outlines Summary of the Family and Business Tax Cut Certainty Act of 2012 as Approved by the Senate Finance Committee. (Bill text is posted on the committee’s legislation website here.)
The Family and Business Tax Cut Certainty Act of 2012 is bipartisan legislation extending dozens of tax-cuts known as “extenders” that have expired or are scheduled to expire at the end of this year. The bill gives certainty to and critical support for working families and businesses across the country and prevents middle-class families from being hit by the Alternative Minimum Tax (AMT) for two years. (Source)
Key Biotech Business Provisions Include:
Research and Development Credit. The bill extends for two years, through 2013, the research tax credit equal to 20 percent of the amount by which a taxpayer’s qualified research expenses for a taxable year exceed its base amount for that year and provides an alternative simplified credit of 14 percent. The bill also modifies rules for taxpayers under common control and rules for computing the credit when a portion of a trade or business changes hands. Based on preliminary estimates, a two-year extension of this proposal is estimated to cost $14.3 billion over ten years.
New Markets Tax Credit. Through the New Markets Tax Credit (NMTC) program, the federal government is able to leverage federal tax credits to encourage significant private investment in businesses in low-income communities. The program provides a 39 percent tax credit spread over 7 years. The bill extends for two years the new markets tax credit, permitting a maximum annual amount of qualified equity investments of $3.5 billion each year. Based on preliminary estimates, a two-year extension of this proposal is estimated to cost $1.8 billion
Temporarily extend increase in the maximum amount and phase-out threshold under section 179. Under current law, a taxpayer with a sufficiently small amount of annual investment may elect to deduct the cost of certain property placed in service for the year rather than depreciate those costs over time. The 2003 tax cuts temporarily increased the maximum dollar amount that may be deducted from $25,000 to $100,000. The tax cuts also increased the phase-out amount from $200,000 to $400,000. These amounts have been further modified and extended several times on a temporary basis, increasing up to a high of $500,000 and $2 million respectively for taxable years beginning in 2010 and 2011, and then to $125,000 and $500,000 respectively for taxable years beginning in 2012, before reverting to the permanent amounts of $25,000 and $200,000 respectively for taxable years beginning in 2013 and thereafter. The modified proposal would increase the maximum amount and phase-out threshold in 2012 and 2013 to the levels in effect in 2010 and 2011 ($500,000 and $2 million respectively). Within those thresholds, the proposal would also allow a taxpayer to expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property. This proposal expires at the end of 2013. Based on preliminary estimates, a two-year extension of this proposal is estimated to cost $2.4 billion over ten years.
Special rules for qualified small business stock. Generally, non-corporate taxpayers may exclude 50 percent of the gain from the sale of certain small business stock acquired at original issue and held for more than five years. For stock acquired after February 17, 2009 and on or before September 27, 2010, the exclusion is increased to 75 percent. For stock acquired after September 27, 2010 and before January 1, 2012, the exclusion is 100 percent and the AMT preference item attributable for the sale is eliminated. Qualifying small business stock is from a C corporation whose gross assets do not exceed $50 million (including the proceeds received from the issuance of the stock) and who meets a specific active business requirement. The amount of gain eligible for the exclusion is limited to the greater of ten times the taxpayer’s basis in the stock or $10 million of gain from stock in that corporation. The provision extends the 100 percent exclusion of the gain from the sale of qualifying small business stock that is acquired before January 1, 2014 and held for more than five years. The bill also clarifies that in the case of stock acquired after February 17, 2009, and before January 1, 2014, the date of acquisition for purposes of determining the percentage exclusion is the date the holding period for the stock begins. Based on preliminary estimates, a two-year extension of this proposal is estimated to cost $954 million over ten years.
Energy Provisions
Investment Tax Credit in Lieu of Production Tax Credit. Under current law, facilities that produce electricity from solar facilities are eligible to take a thirty percent (30%) investment tax credit in the year that the facility is placed-in-service. Facilities that produce electricity from wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy, and marine renewable facilities are eligible for a production tax credit for electricity produced over a ten-year period. The investment tax credit is better for small and offshore wind facilities. The bill would allow facilities qualifying for the production tax credit to elect to take the investment tax credit in lieu of the production tax credit for facilities that begin construction by the end of 2013. Based on preliminary estimates, this proposal is estimated to cost $135 million over ten years.
Cellulosic Biofuels Producer Tax Credit. Under current law, facilities producing cellulosic biofuel can claim a $1.01 per gallon production tax credit on fuel produced before the end of 2012. This provision was created in the 2008 Farm Bill. The provision would extend this production tax credit for one additional year, for cellulosic biofuel produced through 2013. The proposal also expands the definition of qualified cellulosic biofuel production to include algae-based fuel. Based on preliminary estimates, a one-year extension of this proposal is estimated to cost $59 million over ten years.
Incentives for biodiesel and renewable diesel. The bill extends for two years, through 2013, the $1.00 per gallon tax credit for biodiesel, as well as the small agri-biodiesel producer credit of 10 cents per gallon. The bill also extends through 2013 the $1.00 per gallon tax credit for diesel fuel created from biomass. Based on preliminary estimates, a two-year extension of this proposal is estimated to cost $2.1 billion over ten years.
Cellulosic Biofuels Bonus Depreciation. Under current law, facilities producing cellulosic biofuel can expense 50 percent of their eligible capital costs in the first year for facilities placed-in-service by the end of 2012. This provision was created in the 2008 Farm Bill. The provision would extend this bonus depreciation for one additional year for facilities placed-in-service before the end of 2013. The proposal also expands the definition of qualified cellulosic biofuel production to include algae-based fuel. Based on preliminary estimates, a one-year extension of this proposal is estimated to cost less than $500,000 over ten years.
Incentives for alternative fuel and alternative fuel mixtures (other than liquefied hydrogen). The bill extends through 2013 the $0.50 per gallon alternative fuel tax credit and alternative fuel mixture tax credit. This credit can be claimed as a nonrefundable excise tax credit or a refundable income tax credit. Due to claims of abuse in the alternative mixture tax credit, the Committee adopted an amendment denying taxpayers from claiming the refundable portion of the alternative fuel mixture tax credit. Revenue estimate pending.
To read the full summary of the The Family and Business Tax Cut Certainty Act of 2012, As Approved by the Senate Finance Committee, click here.
For a more detailed look at the provisions of the Fioscal Cliff Bill (The American Taxpayer Relief Act of 2012) visit the following links: