Incentives Watch: States Are Laboratories of Democracy for Biotech Credits

In the absence of a federal tax credit for investing in biotech companies, many states have filled the void by offering generous incentives for investing in qualified startups.  A federal bill that would offer such an incentive—the Innovative Technologies Investment Incentive Act of 2011 (H.R. 1732)—is reportedly modeled on Maryland’s program. But the measure has gained no traction since being introduced.

Maryland offers a biotechnology investment tax credit that is a refundable tax credit equal to 50 percent of an eligible investment made in a qualified biotechnology company during the tax year, not to exceed $250,000. Among other requirements, a qualified biotechnology company's securities must not be publicly traded on an exchange. In addition, the company must have been in active business for no more than 10 years.

The state recently adopted final rules for the biotechnology investment tax credit that clarify the requirements and procedures for a biotechnology company to be certified as a qualified Maryland biotechnology company, a Bloomberg BNA Weekly State Tax Reportarticle noted.

The New York Department of Taxation and Finance recently issued a technical memorandum clarifying the requirements for claiming the qualified emerging technology company (QETC) facilities, operations, and training credit, according to another Bloomberg BNA Weekly State Tax Reportarticle. “Emerging technologies” include biotechnologies.

The business must meet the following requirements to claim the credit: have no more than 100 employees, 75 percent of which are employed in the state; have a ratio of research and development funds to net sales equal to at least 6 percent; have gross revenue of $20 million or less for the tax year immediately preceding the year in which the taxpayer is claiming the credit; and qualify as a QETC specifically for the activities listed in N.Y. Pub. Authorities Law Section 3102-e(1)(b), which includes biotechnologies.

Arkansas, California, Colorado, Connecticut, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, Rhode Island, and Washington also offer biotechnology tax credits, according to the Bloomberg BNA State Tax Portfolios.

In other developments . . .

The Oregon Department of Energy adopted permanent rules to administer the alternative fuel vehicle infrastructure tax credit within the Energy Incentives Program, according to an article in the Bloomberg BNA Weekly State Tax Report.

By: Kathleen Caggiano

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