By Lisa Seachrist

Washington Editor

WASHINGTON ¿ Following efforts in the House, a bipartisan group of senators has introduced legislation that would make a research and development tax credit a permanent feature of the tax code.

Sens. Orrin Hatch (R-Utah), Max Baucus (D-Mont.) and Charles Robb (D-Va.) introduced legislation to make the Research and Experimentation (R&E) Tax Credit permanent. The tax credit applies to companies conducting research for new products or processes, and provides a significant tax break for organizations incurring expenses as a result of innovative research.

¿It¿s an important bill that we have been talking about for years; now, it¿s time to do something about it,¿ said Hatch, who serves as chairman of the Senate Finance Committee, which will take up the legislation. ¿In order to make the credit reach its full potential, it must be made permanent,¿ Hatch said.

The R&E tax credit, commonly referred to as the ¿R&D tax credit,¿ was first enacted in 1981 for a period of 4.5 years. The credit has enjoyed nine extensions, for periods ranging from three years to six months. However, for an 18-month period a few years ago, the credit lapsed.

The credit¿s checkered history makes it difficult for companies to plan their development expenses. Biotechnology and pharmaceutical companies especially rely on this tax credit to plan the timing of expensive clinical trials.

Both the Biotechnology Industry Organization and the Pharmaceutical Research and Manufacturers of America have lent their support to making the tax credit permanent.

¿This tax credit has proven effective,¿ Hatch said. ¿In the period when the tax credit lapsed, [from] 1995 to 1996, many biotech companies actually deferred clinical trials.¿

Walter Moore, vice president of government affairs for South San Francisco-based Genentech Inc., confirmed Hatch¿s assessment, noting that the company ¿take[s] four drugs into clinical testing every year. In 1995, we only took three drugs into clinical testing.¿

Moore went on to say that, had the tax credit failed to have been renewed in 1996, the company¿s most recently approved drug, Herceptin for the treatment of certain metastatic breast cancers, would not have gotten to patients as quickly.

Hatch said, ¿If you can imagine, just one drug developed as a result of this incentive could save thousands of lives.¿

Currently, corporations receive a 20 percent tax credit for research and development (R&D) expenditures in excess of a calculated base amount. Companies may opt to forgo the 20 percent tax credit for an alternative, incremental credit that has three rate tiers.

The authorization for that credit will expire in June, unless Congress acts to either extend the provision or make it permanent.

Robb said that, in his ¿previous incarnation as governor, my experience was that businesses weren¿t so consumed with every minute detail of the tax credit. They just wanted to make sure that their decisions are based on some degree of certainty. That is what this tax credit gives them.¿

Baucus highlighted what he called the ¿charade¿ that administrations of both ¿flavors¿ have perpetrated with every budget since the tax credit was enacted ¿ by presenting a budget with the tax credit absent, only to have Congress insert it into the tax credit later. ¿This is a very important tax credit, and we all know that we are going to renew it,¿ Baucus said. ¿Most provisions in the tax law are permanent, and we are only dealing with one of the most productive tax incentives we¿ve enacted. Making the R&D tax credit permanent is a hedge against complacency.¿

The House currently has two bills pending to make the tax credit permanent. Rep. James Sensenbrenner (R-Wis.) and Rep. George Brown (D-Calif.) introduced the legislation in February. (See BioWorld Today, Feb. 23, 1999, p. 1.)

Reps. Nancy Johnson (R-Conn.) and Robert Matsui (D-Calif.) introduced similar legislation in early March. The Johnson-Matsui bill has garnered nearly 100 co-sponsors in the House.

The Hatch-Baucus bill has 30 co-sponsors to date.

Hatch said this is ¿the year that we can get this done. A lot will depend on getting the Democrats on board. I think we can get all of the Republicans on board.¿