Alternative Simplified Credit Computation
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The Alternative Simplified Credit (ASC) is an alternative method used to compute Research and Development (R&D) tax credits. Companies using the ASC computation may be able to claim a credit even if they do not qualify for the traditional tax credit claims. R&D is critical in advancing technology, growing a business, and expanding a product line. R&D is an important part to a strong electronics industry enabling businesses to develop new processes and products. The passage of an increase of the ASC rate is imperative for our industry to remain competitive, retain jobs, and ensure the competitiveness of U.S. technology-based businesses.
The ASC and traditional R&D tax credits are designed to stimulate company R&D over time by reducing after-tax costs. Even though the current economic downturn has resulted in many companies reducing R&D expenditures, many companies performing R&D can still receive tax credits by using the ASC formula. For example, many companies are no longer able to qualify for the traditional R&D tax credit because their R&D spending relative to gross receipts has not kept pace with the ratio set in the "base period" that governs eligibility for the regular credit. This can happen, for example, when a company spends less to perform the same amount of R&D because it becomes more efficient in its R&D processes.
Alternative Simplified Credit R&D Tax Credits Simplified
Many businesses are choosing to use the ASC computation because the traditional R&D tax credit computation excludes their company from receiving tax credits. The ASC rate currently equals 14 percent of the excess of current-year qualified research expenses ("QREs"), as defined under section 41(b) of the Internal Revenue Code of 1986, over 50 percent of the taxpayer's average QREs for the prior three years.
Why is an increase of the ASC Tax Credit Rate Important?
The ASC incentivizes U.S. R&D spending. International R&D tax credit incentives are significantly greater than the United States. The traditional R&D tax credit rate is 20 percent where as the ASC rate is 14 percent. Enacting an increase of the ASC rate to 20 percent will facilitate the innovations necessary to compete in the global economy and solidify the number of R&D manufacturing-related jobs in the United States.
Support an increase of the ASC Tax Credit
IPC supports permanent extension and increase of the ASC rate. Congress should enact legislation that would amend the Internal Revenue Code of 1986 to permanently extend the traditional research credit and to increase and make permanent the alternative simplified research credit.