5 tax breaks that business groups want extended

April 27, 2012

The Business Journals

By Kent Hoover

Most business groups support comprehensive tax reform, which would reduce overall tax rates by ending a wide range of highly specific tax breaks.

Tax reform isn’t going to happen anytime soon, however. That’s why business groups are pushing Congress to act now to renew tax breaks that encourage businesses to invest in new equipment, hire more workers and spend more money on research and development.

“These provisions need to be extended as expeditiously as possible to eliminate business uncertainty that is causing delays in investment and hiring,” said Rachelle Bernstein, vice president and tax counsel for the National Retail Federation    National Retail Federation Latest from The Business Journals 5 tax breaks that business groups want extended More splurging on Mom this yearHonolulu boutique owner Tanna Dang awaits retail contest results Follow this company .

The House Ways and Means Committee held a hearing today on these so-called “tax extenders” -- 101 breaks that either expired in 2011 or will expire this year. Here are five tax breaks that are particularly important to the business community:

1. The research and development tax credit. Congress created this incentive for R&D in 1981, but it expired Dec. 31. Other countries now offer more lucrative R&D tax breaks, as well as other incentives to attack R&D activity.

“We wrote the playbook on how to encourage innovation, and now other countries are using it to beat us,” said Shawn Osborne, president and CEO of TechAmerica, an advocacy group for the high-tech industry.

President Barack Obama has called for strengthening the R&D tax credit and making it permanent, something supported by many business groups. In the meantime, they say, revive the old break.

“The failure to, at the very least, simply maintain our current credit increases the risk that the jobs, capital investment, and intangible property developed in the R&D process will move outside our borders,” the U.S. Chamber of Commerce wrote the committee.

2. The production tax credit for wind energy. This tax break, which encourages the production of electricity from wind turbines, expires at the end of this year. If this tax credit isn’t renewed soon, 37,000 wind energy workers could be laid off this year, according to the American Wind Energy Association    American Wind Energy Association Latest from The Business Journals Champaign Co. wind turbines need tax abatement, company saysTexas Business Journals Roundup 4-14Report: Texas still tops in wind energy production Follow this company .

“Timing is everything,” said Denise Bode, the trade group’s CEO. “Our situation is urgent because we’re already seeing the loss of over $15 billion a year in private investment in America.”

The tax credit has helped the wind industry double its manufacturing base in the U.S. since 2004, to more than 400 manufacturing facilities.

3. The 15-year depreciation period for leasehold improvements, restaurant construction and retail remodeling. This break, which expired at the end of 2011, is needed because the standard 39.5-year depreciation schedule for buildings doesn’t reflect business reality, especially for restaurants and retailers, who must remodel their establishments periodically in order to stay competitive.

Having to wait 39.5 years to write off these improvements raises the cost of this investment. As a result, the National Retail Federation    National Retail Federation Latest from The Business Journals 5 tax breaks that business groups want extended More splurging on Mom this yearHonolulu boutique owner Tanna Dang awaits retail contest results Follow this company reports, retailers are putting off decisions on making improvements until Congress decides whether to renew 15-year depreciation.

4. Section 179 expensing. This break encourages small businesses to invest in new equipment by letting them expense much of the cost up front, instead of depreciating it over time.

Congress made this break particularly generous in recent years, allowing small businesses to expense up to $500,000 of the cost of new equipment in 2011. This year, the Section 179 expensing limit fell to $139,000. Next year, unless Congress acts, the limit will drop to $25,000 -- not much of an incentive to buy new equipment.

5. The Work Opportunity Tax Credit. This tax break, which expired at the end of 2011, encourages employers to hire welfare recipients, handicapped individuals or unemployed veterans. NRF’s Bernstein said this incentive has “proven results” in encouraging retailers to hire people who “might otherwise face difficulty in gaining employment.”

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