Sec. Machelle Baker Sanders in the letter urged delegation members to advocate for the deferment of the Internal Revenue Code section 174 amortization requirement focused on R&E.

The new requirement would mean entrepreneurs and organizations across the state would have to amortize costs associated with research activities over time. Entrepreneurs and organizations would not be able to deduct research expenses, resulting in businesses having a higher reported income and, in turn, higher tax costs, per Sanders’ letter. Sanders argued in her letter that this is akin to a “tax on innovation.”

Section 174, originally enacted in 1954, was created to “eliminate uncertainty in tax accounting treatment of research and experimentation (R&E) expenditures, and to encourage R&E as a way to stimulate innovation,” per Sanders’ letter.

In the decades since the section was enacted, businesses have been able to deduct certain R&E expenses immediately to reduce their taxable income — something that, Sanders argued in her letter, “helped increase their competitiveness and drive toward greater technological advancement and commercialization.”

The “Innovation Tax” would negatively impact North Carolina, Sanders stated.

For more details, read the full story at Business North Carolina.