WASHINGTON, DC –
Congressman Chris Pappas (NH-01), a small business owner and member of the House Small Business Committee, renewed on January 10 his bipartisan call for Congress to lower taxes for small businesses by restoring common sense tax policy that incentivizes investments in research and innovation, sending a letter to House leadership with Congressman Aaron Bean (FL-04) calling for a reversal of tax code changes that have severely increased the tax burden borne by small businesses investing in research and development (R&D).
In the letter the lawmakers wrote, “We write to urge you to restore our nation’s businesses and startups’ ability to secure full deduction of their research and development (R&D) expenses each year… All kinds of small businesses, from breweries to manufacturers to farms, are innovators in their industries and incur R&D expenses. According to the Small Business Administration, businesses with between 10 and 499 employees invested $71 billion in R&D development in 2019. Small businesses employ over 500,000 workers focused on R&D and spend a disproportionate amount of their sales on innovation efforts compared to larger businesses.”
The 2017 Tax Cuts and Jobs Act (TCJA) included a change to Internal Revenue Code Section 174, which took effect in 2022 and impacted taxpayers for the first -time last filing season. Before this change, research and development expenses could be deducted in the year they were incurred. This allowed for significant cost recovery and savings for businesses and entrepreneurs. Under the 2017 law, R&D expenses must currently be amortized over five years, which results in substantial tax and cost increases for many businesses.
They highlighted the excessive cost borne by businesses as a result of these changes, noting that, “An engineering business in New Hampshire has seen its tax liability more than double. A Midwest dairy farm, a Missouri steel fabrication company with 120 employees, and a small manufacturing business in Minnesota have all experienced tax hikes in the hundreds of thousands of dollars.”
