New Tax Law Could Destroy Innovative Small Businesses and Block Innovation

Raleigh, NC, March 14, 2023 –(PR.com)– Over 500 CEOs and small business leaders, representing 48 states and DC, joined together to request immediate Congressional action to alleviate the devastating impact that a new tax law will have on innovation in the US. Under the 2017 Tax Cuts and Jobs Act (TCJA), Internal Revenue Code section 174 was modified starting with the 2022 tax year to require capitalization and amortization of research & experimentation (R&E) expenses. Scientific companies and entrepreneurs are now facing tax bills on millions of dollars that they cannot afford to pay and that previously would have been offset by their R&E expenditures.

“Companies will have to pay taxes on 90% of the funds used to support their R&E expenses in 2022 due to this new law,” said Eva Garland, Ph.D., CEO of Eva Garland Consulting, a firm that has supported thousands of small businesses over the past decade that have relied on R&E to bring valuable innovations to society.

Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) awardees will be particularly hurt by Section 174. The ~5,000 small businesses who received over $4 billion in SBIR/STTR funds in 2022 are among some of the most innovative firms in the country. The new tax will force these companies to come up with funds to pay taxes on federal awards received, which were never budgeted for in the grant application. For many small businesses, including partnerships and LLCs, the individual owners will be personally liable for the taxes, without having the benefit of any cash income to pay these taxes.

“Implementation of Internal Revenue Code section 174 will have a crippling effect on the ~1,000 startups created each year via non-profit U.S. research organizations advancing early-stage innovations into the products, services, and the jobs of tomorrow,” said Steve Susalka, Ph.D., CEO of AUTM, an organization comprised of more than 3,100 members who work in more than 800 universities, research centers, hospitals, businesses, and government organizations around the globe.

“An analysis conducted by a state land-grant R1 public university found that section 174 would bankrupt almost every one of their ten SBIR startup companies. In fact, section 174 would have a deleterious effect on SBIR/STTR startup companies across the nation, deforming the SBIR/STTR mission and undercutting its impact,” he added.

AUTM is one of the co-signers of a letter, representing 500 CEOs and small business leaders impacted by the law. The letter requests that Congress “immediately defer the Internal Revenue Code section 174 amortization requirement of the research and experimental expenditures to stop this enormous tax from being imposed on businesses who have no way to pay the tax.”

“The new law is clearly devastating to our nation’s most innovative, cutting-edge scientists and small businesses. Not only will this directly stall scientific progress, it also disincetivizes future scientists from applying to the SBIR/STTR program that is a hallmark of US innovation and competitiveness,” added Dr. Garland.

The full text of the letter sent to the Senate Finance and House Ways & Means Committee is available here.

About Eva Garland Consulting: Eva Garland Consulting was founded in 2013 to help scientists and entrepreneurs advance development of their innovative technologies. The firm specializes in developing non-dilutive funding strategies, grant proposal preparation, grants management services, and accounting. For more information, visit www.evagarland.com.