CLS Requests Support For Legislation To Restore R&D Tax Credit To Assist With The State’s Economic Recovery

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California Life Sciences (CLS) sponsored and introduced Assembly Bill (AB) 593, with Assemblymember Cottie Petrie-Norris (AD 74) which reinstates the Research and Development (R&D) Tax Credit and Net Operating Loss (NOL) deductions for life sciences companies in California for tax years 2021 and 2022.

This restoration is crucial to incentivize COVID-19 related bioscience innovation in California, reward increased job opportunities in science and health care, and assure the state continues as the leader in life sciences innovation across the nation.

Background

AB 85 (Committee on Budget, 2020) limited the use of business incentive tax credits for R&D to no more than $5 million for tax years 2020, 2021 & 2022. In addition, the legislation suspended the use of NOL deductions for businesses with revenues in excess of $1 million during those years. Due to the COVID-19 pandemic, some cuts to the state budget were understandably necessary. However, as we look to move past this crisis and to move forward, these R&D tax credits and NOL deductions will incentivize investments from CLSA members that result in continued job creation and the development of life-saving therapies. Life sciences companies are playing a crucial role in the state’s recovery and can be a cornerstone of the state’s economic recovery.

The life sciences industry is creating and expanding job opportunities

California’s life sciences sector plays a significant and beneficial role in the state’s economy, and reinstituting the R&D tax credit and NOL deduction is a smart and sensible job development strategy for the state. Life sciences companies directly employed over 323,000 people in 2019 – a 4% increase over the previous year. When indirect employment is factored in, the sector accounts for almost 1 million jobs. The industry paid workers $40 billion (almost a $3 billion increase in one year) in salaries and wages during 2018 with an average annual salary of almost $124,000.

The life sciences industry is essential to developing life-saving medicines

Millions of people around the world look to California life sciences companies for hope in the fight against their diseases and illnesses affecting loved ones or themselves. Our state is home to 3,766 life sciences companies producing new technologies to improve patient care. In 2019, California companies had 1,380 new medicines in the pipeline. These include 455 medicines for cancer, 136 for central nervous system (CNS) disorders, and 105 for infectious diseases, and represented nearly one-quarter of the nation’s clinical trials. Public and private financial support—including tax incentives—for early stage and clinical research is critical to supporting and expanding the number and reach of clinical trials and medical research. Private industry is still the single largest funder of clinical trials in the Golden State and across the U.S.

The life sciences industry is the solution to the pandemic and the state’s economic recovery

Life sciences companies in the U.S., including many smaller innovative companies, are actively working with 788 unique clinical and pre-clinical compounds to develop either treatment or protection against COVID-19. As of December 2020, over 400 companies in the U.S. were working on these solutions. The state should prioritize the life sciences industry as it looks to continue innovation and workforce development while solving the COVID-19 crisis.

Economic experts support investing in health recovery and job development

Governor Newsom’s Task Force on Business and Jobs Recovery Report November 2020 recommended several key priorities and challenges that the state should take into consideration as it battles against the COVID-19 pandemic and works to rebuild a resilient economy in its wake.

It first emphasized a “health-first” strategy recognizing that the state will never successfully recover without a strong investment in solving the pandemic and its health impacts. In addition, the report prioritized the protection and creation of quality jobs.

Reductions to the R&D tax credit and NOL were intended to help curve the anticipated fiscal shortfall brought by the COVID-19 pandemic. With the state’s fiscal situation in better shape, these cuts should be restored. By re-instating the R&D tax credit and NOL deduction for life sciences companies, the Legislature will boost the state’s long road to full economic recovery through incentivizing job development in biosciences and further solidifying California as a leader in life science innovation.