Resource
The increasing complexity of environmental and societal challenges means incentivizing innovation in engineering is more important than ever.
From developing technologies that make our air cleaner to treating wastewater to make it drinkable, engineers play a critical role in advancing our society and enhancing our daily lives for the better.
The future, brimming with potential, calls for a strategic approach to research and development that not only supports but also stimulates groundbreaking advancements.
But that isn’t possible without Congressional action by the end of the year.
A tax change in 2022 means that companies engaged in R&D activities must amortize all associated costs over a five-year timeline, rather than deduct these costs in the same year they incurred, which was precedent for decades.
This levy impacts small businesses the most, particularly engineering firms that specialize in R&D, to the detriment of our economy and communities.
For decades, allowing companies to expense R&D costs in the same year encouraged immediate and substantial investment in innovation.
This approach was particularly beneficial for small engineering firms.
The ability to deduct these costs in the same year provided these companies with vital cash flow relief, enabling them to reinvest in further innovation and growth, as well as meet essential outlays like payroll, administration, and other overhead expenses.
But this tax mandate changes that dynamic entirely.
Small engineering firms, oftentimes operating with limited budgets and narrow profit margins, rely heavily on the immediate tax relief provided by expensing R&D costs.
Spreading these costs over five years significantly delays the tax benefit, straining cash flows and limiting their ability to invest in new projects and sustain current ones.
Since engineering companies big and small work on local, state, and federal contracts, this can impact projects of all kinds — including more than 300 in Ohio awarded federal funding through the Bipartisan Infrastructure Act.
As we navigate the challenges of our world, fostering innovation in engineering is more crucial than ever.
Small engineering companies play a pivotal role in this landscape, and it is essential that tax policies not only recognize but also bolster their capacity to innovate.
This tax provision, by reducing immediate financial relief, inadvertently discourages risk-taking, potentially leading to a more conservative approach to innovation.
This spells trouble for local economies and communities across Ohio and the rest of the country.
If Congress does not address this now, I fear that the growing tax burden engineering companies and other small businesses face will simply become unsustainable.
I call upon Ohio’s Congressional leaders to pass legislation right away that would revert this tax provision to its previous form and allow engineering firms to immediately deduct R&D expenses and get the cash flow they need.
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This piece originally appeared in the Toledo Blade on December 28, 2023. Brad Lowery is the president of Jones and Henry Engineers, Ltd.