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TN General Assembly urged to de-couple state R&D tax deductions rule
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Updated: Feb. 2, 2022: SB 2397 (Johnson), HB 2144 (Lamberth) enrolled, bills here.-Ed.

BEACON IMPACT, a policy- and regulation-oriented nonprofit organization based in Nashville, is working to enlist members of the Tennessee General Assembly to push for legislation that would decouple the State's tax code from the Federal Tax Cuts & Jobs Act of 2017 (TCJA).

Interviewed by Venture Nashville, Beacon Impact Director of Policy Ron Shultis said the proposed decoupling is aimed at preserving Tennessee businesses' freedom to continue immediately expensing their research and development (R&D) outlays for state tax-reporting purposes, rather than capitalizing and amortizing deductions as now required by TCJA.

The federal amortization period in TCJA is five years for expenditures associated with R&D work done domestically, and 15 years for expenses for work done in other nations.

Because Tennessee tax policy remains coupled to TCJA -- which, as scheduled, changed R&D deduction rules this month -- Tennessee businesses will not be able to expense R&D spending, unless and until the State acts to decouple the Tennessee tax code from the federal.

Shultis emphasized that decoupling would essentially maintain the status quo circa 2021 for Tennessee business filers and State revenue coffers, alike.

In constrast, he said failure to decouple state R&D tax law from the federal would produce a "windfall" in State tax revenues, and would -- taking into account the differential value of deductions 'now versus later' -- represent an additional burden for businesses, and which the State's fiscal strength makes unnecessary.

According to a 2019 Tax Foundation report, from 1954 until the end of 2021, U.S. businesses were allowed to expense R&D outlays in the year those expenditures were made.

Shultis said that, thus far in conversations with Capitol Hill influentials, he has encountered no opposition to the decoupling proposal.

Moreover, he said he is optimistic that Tennessee House and Senate sponsors for de-coupling legislation will be in-place prior to the respective chambers' deadlines for filing bills, Feb. 2 and 3.

VNC has not yet found a source for comparative macro projections of future years' State revenue dollars and-or projections of future Tennessee-domeciled corporate outlays under coupled or decoupled scenarios.

Responding to a VNC query on this matter, Tennessee Department of Revenue Communications Director Kelly Cortesi said that "while the Department of Revenue is aware of discussions surrounding [R&D decoupling...] it is premature to discuss potential legislation or estimates" of the fiscal-economic impact of any such future bills.

Shultis said he believes no more than two other states that have been coupling their tax laws to federal laws are actively considering de-coupling due to federal tax changes. (A map showing the Fifty States' degrees of conformity to federal tax law, in the wake of TCJA's 2017 passage, is here.)

Ron Shultis

Yesterday, Shultis said he had begun outreach to members of the General Assembly, and has discussed the decoupling issue with the representatives of the Tennessee Chamber of Commerce and Industry. VNC notes that the Tennessee Chamber will hold its annual Legislative Reception and Day on the Hill, Feb. 22.

Beacon Impact says on its website that its mission "is to turn the ideas of the Beacon Center of Tennessee into action through advocacy."

Both Beacon Impact and Beacon Center have previously published commentary suggesting that decoupling would reduce Tennessee business tax outlays, and further enhance Tennessee's economic-development reputation as a place for business relocation and expansion, as well as a site for R&D.

Earlier this month, Beacon Center published an article about the "Innovation Tax." The author of that piece views an "innovation tax" as one result of shifting toward amortizing capitalized R&D expenditures, article here.

Also, several months ago Beacon Center issued its pro-innovation Back to the Future report, which said, in part, "Even though Tennessee's technology sector has grown considerably in the last few years, particularly in the Nashville market, Tennessee is still far from a major player in the innovation economy."

In that Back to the Future report, Beacon Center cited an earlier statement attributed to Nashville Technology Council CEO Brian Moyer -- regarding Nashville's struggle to expand its tech talent pool in the face of rising workforce demands -- as evidence as what Beacon views as Tennessee's laggard standing relative to major U.S. technology centers.

Shultis told VNC he has not spoken with the state's regional information technology councils about the tax decoupling issues.

Coincidentally, yesterday Nashville Technology Council included in its weekly newsletter a poll asking readers whether their organizations are "investing and hiring in Research & Development (R&D)" in the Greater Nashville area.

Queried about the poll, NTC VP Public Affairs & Communications Alex Curtis said the member poll question was meant to assess members' interests and priorities, as well as to inform program development and trend-monitoring efforts, and "had nothing to do with state R&D tax deduction policy, nor are we lobbying on that issue."

Curtis added that NTC believes that companies that have R&D efforts underway are often innovative enterprises, which NTC would want to recruit as NTC members, if they aren't already.

NOTES: R&D Tax Deduction resources: 1 | 2 | 3 |

R&D Tax Credits resources: Tennessee is one of 13 states and the District of Columbia that don't have R&D tax credits. Resources 1 | 2 | 3 |

501(c)(4) Beacon Impact and 501(c)(3) Beacon Center operate in tandem, in a model often used by groups that see need for sustained lobbying, as well as advocating. Related resources: 1 | 2 | 3. VNC

.last edited 0828 26 January 2022


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Tags: Alex Curtis, Beacon Center, Beacon Impact, Brian Moyer, Federal Tax Cut and Jobs Act, innovation, Jack Johnson, legislation, Nashville Technology Council, regulations, research, Ron Shultis, taxation, taxes, Tennessee General Assembly, William Lamberth


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