Congress Passes Tax Reform Legislation, Protecting Critical Orphan, R&D Tax Credits
Dec. 20, 2017
On Dec. 20, Congress passed a sweeping overhaul of the tax code in the form of H.R. 1, the Tax Cuts and Jobs Act. While CLSA did not take a position on the overall legislation, we did work in close collaboration and coordination with BIO and our CLSA member companies to ensure that the Orphan Drug Tax Credit – a meaningful incentive for investment in rare disease therapy innovation – was preserved in the final bill passed by Congress.
The California Congressional Delegation overwhelmingly opposed H.R. 1 when it was brought to the full House and Senate for a vote. In the House, the measures passed by a vote of 224 to 201. All present California Democrats voted against the bill (38 voted no, and Rep. Grace Napolitano (D-El Monte) did not vote) with 2 Republicans, Reps. Darrell Issa (R-Vista) and Dana Rohrabacher (R-Huntington Beach), also voting against the bill. Overall, 12 House Republicans opposed the measure, including the aforementioned 2 from California. No House Democrats voted for the bill. In the Senate, H.R. 1 passed by a vote of 51 to 48. The vote fell along party lines, with all Republicans voting for the measure, and all Democrats voting against it. Both of California’s senators – Sens. Dianne Feinstein (D) and Kamala Harris (D) – opposed the measure. (Sen. John McCain (R-Ariz.) did not vote.)
The bill now goes to the President’s desk for signature, where it is expected to be signed into law before the end of the year.
By way of background, in November, both the House and Senate passed their respective versions of H.R. 1. Notably, the House-passed bill eliminated the Orphan Drug Tax Credit (ODTC). By contrast, the Senate-passed bill retained the ODTC, but at a significantly reduced rate of 27.5% in order to meet the revenue targets necessary to pass comprehensive tax reform. (Note: Section 45C of the Internal Revenue Code currently provides eligible drugmakers a tax credit of 50% of the qualified clinical testing expenses incurred in a taxable year with respect to drugs designated as “orphan drugs” by the FDA.) Neither bill addressed the medical device tax, and both bills retained the R&D tax credit.
Over the past several months, CLSA has advocated vociferously for the Orphan Drug Tax Credit to be retained in the reformed tax code. Most recently, we sent a letter to the only conference committee member from California, Rep. Devin Nunes (R-Visalia), urging that he support the protection of the ODTC in the Conference Report. A copy of the letter we sent to him can be viewed here. CLSA also coordinated a California company sign-on letter to House Majority Leader Kevin McCarthy (R-Bakersfield) urging that the ODTC be included in the final tax reform package. Cosigned by 21 California companies invested in rare disease therapy innovation, a copy of that letter can be viewed here. We are pleased to see that our advocacy and engagement helped ensure the inclusion of a meaningful Orphan Drug Credit in the conference package. Click here to view the legislation.
It is worth noting that the R&D Tax Credit remains intact and was not altered by H.R. 1. Another tax-related provision of interest, the medical device excise tax, was not addressed in H.R. 1. Click here for an update on our efforts to repeal the medical device tax.
Questions? Please contact Jenny Carey, CLSA’s Vice President of Federal Government Relations & Alliance Development (firstname.lastname@example.org).