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Will R&D tax credit survive?

April 11, 2011

Oregon’s Research & Development Tax Credit Critical to Economic Growth – Will it Continue?
By J.L. Wilson
Associated Oregon Industries

Right now, the Oregon Legislature is determining whether to keep the R&D Tax Credit in place or eliminate it. Associated Oregon Industries is supporting passage of either House Bill 3174 or Senate Bill 315, each of which keeps the R&D Tax Credit alive for another six years. If either of these bills don’t pass, Oregon’s R&D Tax Credit will go away.

Why is the R&D Tax Credit important? Because incenting research spending is critical to the Oregon economy. Research drives innovation and the development of new products, and research-intensive jobs generally are much higher-paid than other types of employment.

Since the initial passage of the R&D Tax Credit in 1989, Oregon has made monumental strides in becoming a research and innovation economy. Oregon has greatly increased its research capacity in terms of the share of the state’s gross domestic product, and most of this increase has occurred in the private sector.

R&D as a share of Gross Domestic Product (GDP) by state. Oregon went from spending $1.91 billion in 1998 to spending $4.3 billion in 2007 on R&D. Oregon now spends 2.62% of GDP on R&D, making it the 14th highest R&D state at 105% of the U.S. average.

Business-performed R&D as a share of private industry output by state. Oregon business went from spending $1.3 billion on R&D in 1998 to spending $3.6 billion in 2007. Oregon private sector R&D investment now stands at 2.61% of private industry output. This makes Oregon’s private sector the 9th highest R&D investment state at 119% of the U.S. average.

(Source: NSF Science and Engineering Indicators, 2010)

In Oregon’s high-tech sector alone, the payoff is clear.

According to TechAmerica’s most recent study of employment and wages in the states, the sector employs 86,000 Oregonians at an average wage of $80,000 – that’s more than twice the average private sector wage in Oregon. High-tech generates a total payroll of $6.9 billion in Oregon. For a state highly dependent on the personal income tax, such high wages help generate revenues to fund needed public services.

The R&D tax credit is not limited to high-tech alone, and can be used by a wide range of sectors in Oregon that perform research here in the state.

Some 40 states have a form of tax incentive related to research. Some states have recently expanded the value of their credits. In 2010, Minnesota doubled the allowable percentage of its credit from 5% to 10% and made the credit refundable. New Jersey is proposing to double their R&D credit.

Oregon’s credit, which amounts to 5% of the federal allowed amount, stands about in the middle of other states, which range from an effective rate of 0.2% to a high of 20%.

Oregon cannot afford to go backwards on the R&D Tax Credit. We would be the only state to do so. Sending a signal that Oregon places a reduced value on private sector R&D shows that Oregon is not serious about job creation.

AOI will continue to advocate for HB 3174 or SB 315 to keep Oregon competitive with job-creating research and development investments. Governor Kitzhaber supports these measures, and they do appear poised for passage. AOI will continue to push for and update you on these and other bills that are vital for economic growth.

(Thanks to TechAmerica for its efforts on the R&D Tax Credit and its contribution to this article.)

  
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