The state's leading trade group for the biotech industry says U.S. Senate legislation introduced this week provides a critical boost to young life science companies struggling to raise cash and capital.
"It goes right to the heart of what so many small, early-stage and cash-strapped companies really need," Debbie Hart, CEO of BioNJ said of a bill introduced Wednesday by U.S. Sen. Robert Menendez, D-N.J., and Sen. Patrick Toomey, R-Pa.
"It expands their cash allowance," she said. "It also lets them hold on their investment dollars for longer periods and at higher rates."
The bill, dubbed the Start-up Jobs and Innovation Act, generally expands tax deductions, eases tax accounting rules and reduces cost of research and development. Hart said those provisions especially benefit life science companies, where development of a breakthrough technology can cost more than $1 billion and take ten or more years.
Among the bill's provisions:
- It permanently allows companies to deduct the first $500,000 in equipment purchases;
- Doubles the amount of start-up costs that entrepreneurs can deduct in the first year from $5,000 to $10,000;
- Lowers capital gains taxes on long-term investment in companies;
The bill also ease tax compliance for small businesses by allowing companies with revenue up to $10 million, up from the current $5 million threshold, to use the simpler "cash accounting" method, where businesses don't report income until actual cash or checks are received, and expenses are not counted until they are actually paid.
This is different from the standard accrual method when income and expenses are recorded when the order is made. The senators say the cash method allows smaller businesses to focus more resources on expansion and less on tracking tax liability.
Mendendez and Toomey's bill also allows small and startup companies to partner with their investors to conduct research through research and development partnership structures, which are designed to draw more investment at early stages.
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