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Senate of Pennsylvania
Session of 2019 - 2020 Regular Session


Posted: March 4, 2019 07:19 PM
From: Senator Sharif Street
To: All Senate members
Subject: Job Creating Tax Credits
In the near future, I will be introducing legislation to expand the Research and Development Tax Credit, and to establish an Angel Investor Tax Credit to encourage private investment and spur job creation in the Commonwealth.

Pennsylvania government must stop managing decline. For years we have been struggling to get our budget in balance by raising taxes or cutting services. We must implement progressive, pro-growth tax policies that will grow our economy, create jobs, and increase revenue.

Expansion of the Research and Development Tax Credit

One important tax program is the Research and Development Tax Credit, which incentivizes private industry to increase their level of R&D which leads to innovation, business growth, and job creation.

Act 7 of 1997 established a Research and Development Tax Credit equal to 10 percent of the increase in qualified research expenses incurred by a private business for the current taxable year over a base period. Beginning in December 2006, Pennsylvania began offering small businesses a tax credit of 20 percent of the increase in qualified research expenses for the current taxable year over a base period. The credit may be applied against the corporate net income tax, capital stock/foreign franchise tax, personal income tax, or any combination thereof. Unused credits may be carried forward 15 taxable years or sold or assigned to other taxpayers.

Currently, the total amount of credit that can be awarded is $55 million, with the small business set aside equal to $11 million. The demand for this tax credit is much greater than the current budgeted amount as all $55 million is awarded each year.

Creation of an Angel Investor Tax Credit

Another useful tool that has been shown to encourage capital investments in targeted small businesses is an “Angel Investor Tax Credit,” which is currently implemented in 29 states across the country. Angel investors provide essential funding to emerging companies, allowing them to hire employees, engage in research and development and bring product to market. Funding by angel investors also, critically, helps bridge the gap between early stage funding (such as bootstrapping and funding from friends and family) and venture capital and private equity funding. In addition to funding, angel investors can also offer emerging companies a wealth of counsel, including subject matter expertise and a rolodex of valuable contacts.

During budget hearings this year, Christopher Molineaux, President & CEO of Life Sciences Pennsylvania, the Commonwealth’s trade association for the Life Science Industry, testified that raising the cap on the R&D Tax Credit to $100 million and instituting an Angel Investor Tax Credit would each have a significant impact on innovation and business development in PA.
This legislation will do the following:
  • Increase the annual cap on the Research and Development Tax Credit Program from $55 million per year to $100 million per year and reserve $20 million for small businesses.
  • Establish an “Angel Investor Tax Credit” and cap the annual allocation to $20 million.
    • A taxpayer who invests in a qualified small business in Pennsylvania would be eligible for a tax credit worth 25% of the investment.
    • A qualified small business would include companies in a growth sector, or to any small diverse business.
    • Qualified small businesses can receive up to $2 million per year in tax credit-eligible cash equity investment, of which no more than $1 million can come from a single investor. (With a 25% credit, if any investor kicks in $1 million, he or she will get $250,000 in tax savings.)
    • Unused credits may be carried forward over the next 7 taxable years or sold or assigned to other taxpayers.
Please join me in sponsoring this important legislation. If you have any questions, contact my Policy Director, Micah Mahjoubian, at micah@pasenate.com.

Introduced as SB522