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My View: How the Legislature can support Arizona’s economic balancing act

Phoenix Business Journal

It’s no secret that Arizona has become a hotbed for innovation. In fact, the Arizona Technology Council celebrates such successes with our annual Governor’s Celebration of Innovation.

For example, Tempe-based Imanyco was honored as the 2023 Innovator of the Year – Start-Up Company. This company is making a mark with its creation Koda, a real-time transcription technology that assists deaf and hard-of-hearing people during in-person group conversations.

Such a product and others like it are making a difference in our lives. And if not for the accompanying research and development to help bring them to life, they would just be ideas in people’s minds.

But innovation goes much further. It is one of America’s greatest strengths and a significant contributor to job creation, competitiveness and national security.

Again, it’s thanks to the research and development that happens behind the scenes.

For those reasons, the Arizona Technology Council celebrates the U.S. House of Representatives’ passage of the Tax Relief for American Families and Workers Act (HR 7024), which repeals the harmful research and development (R&D) amortization provisions that went into effect in 2022.

The Council has supported HR 7024, which passed through the House on Jan. 31, due to its significant economic impact. In fact, every $1 billion in R&D spending supports 17,000 jobs and small business alone accounts for approximately $90 billion of all private-sector R&D investments. Passage of this bill forwarded to the U.S. Senate could potentially impact more than 1.5 million American jobs.

HR 7024 can help reverse damage that has been done. The harmful tax change that took effect in 2022 has devastated America’s small businesses and innovators who are increasingly unable to invest in critical R&D innovation.

Passage of HR 7024 just the first step

For nearly 70 years, American businesses have been permitted to deduct 100% of R&D expenses from taxable income in the year those expenses were incurred. However, when Congress passed the Tax Cuts and Jobs Act in 2017, it changed the tax treatment of R&D to partially offset the revenue impact of the tax cuts.

Beginning in 2022, businesses have been required to amortize R&D investments over five to 15 years, dramatically increasing their annual tax liability and disincentivizing innovation generating investments. Since the change took effect, the growth rate of R&D investments dropped from a five-year average of 6.6% to less than 1.2% last year. In the most recent quarter alone, R&D spending decreased by 2.3%.

HR 7024 is designed to bring those investments back to Arizona and greatly boost small-business and start-up activity throughout the state. The bill’s passage brings us closer to some relief and will immediately benefit the many small- to medium-sized innovators and start-ups here in Arizona.

I must point out that none of this positive news could have happened without support from Arizona delegation members responsible for helping to advance this bill through the House, including Reps. David Schweikert, Ruben Gallego, Raúl M. Grijalva, Greg Stanton and Juan Ciscomani.

But we still have some work ahead as HR 7024 heads to the Senate. I encourage you to let Senators Kyrsten Sinema and Mark Kelly know how important the measure is to the state — and to Arizona’s future.


Register for the Council’s upcoming Phoenix and Tucson tech events and Optics Valley optics + photonics events.


 

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