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Taxes

 
 

Tax Reform

In December 2017, Congress passed and the President signed into law tax legislation, which reforms our corporate and individual tax code. Biocom applauded Congress for permanently reducing the corporate tax rate to 21 percent from 35 percent and moving the U.S. to a territorial tax system, where the overseas profits of U.S. companies would no longer be subject to U.S. tax. These landmark provisions will help make California companies more successful and competitive at home and abroad.

The bill also retained the research and development (R&D) tax credit, which incentivizes companies to invest in R&D and is essential to the sustainability and growth of life sciences innovation. However, Biocom has repeatedly expressed concerns about provisions that reduced the orphan drug tax credit from 50 percent to 25 percent and limited State and Local Tax (SALT) deductions for income and property, which disproportionately disadvantage Californians. Biocom will continue to support policies that promote research, innovation, and advanced manufacturing, stimulate job creation and economic activity, and sustain America’s global leadership.

Medical Device Excise Tax

Biocom applauded the two-year retroactive delay (2018-2019) of the medical device tax that was signed into law in January 2018 and adds to a previous two-year suspension of the tax, enacted in 2015 The bill ensures that medical device manufacturers will continue to be exempt from paying the 2.3 percent excise tax on medical device sales, which first took effect on January 1, 2013, and has put serious budget constraints on medical device companies. The tax is expected to cost manufacturers nearly $30 billion over the next ten years, putting 43,000 jobs at risk, stifling R&D investments and medical innovation, eroding U.S. global leadership, and jeopardizing patient access to breakthrough devices and therapies. Similar excise taxes are levied by the federal government on products such as alcohol and tobacco to discourage their use. In addition, the tax is assessed on revenue and, therefore, is particularly burdensome for many innovative start-up companies, which are not yet profitable. Fully repealing the medical device tax remains one of Biocom’s top priorities.

Gross Receipts Tax

Gross receipts tax the total amount a company receives from all sources, without subtracting expenses or taking into account whether the company has a commercialized product. These taxes can be levied on grant funding (both government and disease foundations), upfront payments from licensing and partnering, and research reimbursements – sources that are not traditionally taxed.

Research has shown these taxes lead to lower hiring rates, and increased costs to consumers. Additionally, gross receipts tax causes pyramiding, the process by which a good is taxed multiple times as it is sold throughout the production process before finally being sold to a consumer and taxed again. Recently, new gross receipts taxes have been levied or proposed on various commercial activities, leading to accumulating tax obligations.

Gross receipts taxes disproportionately impact companies with small margins like small and mid-sized life sciences with low or no profit margins. Adjusting corporate taxes to relieve this undue burden will encourage industry growth.

Linkage Fees

Biocom opposes implementation of new fees and taxes that hinder development of new life sciences facilities and campuses. In San Diego, the affordable housing offset, or “linkage fee,” was renegotiated in 2014; we successfully lobbied for an exemption for research and development from the 100% fee increase experienced by other industries. The City of Los Angeles is currently considering implementing a linkage fee of $3-5 per square foot for commercial development, depending on where the business is located. We urge officials to consider the potential negative impacts to businesses of all new fees before implementation.

Biocom Policy Statements

  • Tax Reform: New for 2018 - Download
  • Biocom Statment on Tax Cuts and Jobs Act - Download
  • Biocom Medical Device Tax One-Pager - Download
  • Biocom Members Statement on the Medical Device Tax - Download
  • Biocom Tax Extenders Press Release - Download
 
 

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