The House on Wednesday approved a bipartisan tax relief bill that includes a provision restoring the research and development (R&D) tax credit that defense contractors say provides them with an incentive to invest in innovation and technology.
The tax credit had expired on Jan. 1, 2022, and the Tax Relief for American Families and Workers Act (H.R. 7024) would retroactively restore the R&D provision to when it expired, and extend it through 2025. If the bill is ultimately approved, businesses could immediately deduct their research and experimentation expenses rather than expensing them over a five-year period.
The credit is outlined in Section 174 of the bill, which still requires Senate approval and President Biden’s signature. The R&D credit allows deductions of domestic research and experimentation costs. R&D expenses made by U.S. business overseas would still be expensed over 15 years.
For U.S. defense contractors, ultimate passage of the tax bill would likely result in a tailwind to earnings and cash flow.
The bill passed by a voted of 357 to 70, with most of both Democrats and Republicans in favor. Sen. Ron Wyden (D-Ore.), who chairs the Senate Finance Committee, co-authored the legislation.
“The harmful research and development tax expensing policy stripped businesses of incentives to participate in the important exploration of advanced and emerging capabilities, hindering America’s economic competitiveness,” Eric Fanning, CEO of the Aerospace Industries Association, said in a statement on Wednesday evening. “Now we hope to see the Senate act with urgency to bring this bill to the floor and give America’s small and medium-sized business the relief they need.”