April 20, 2023 4 New Laws. 1,388 Amendments. $4.1 Trillion Dollars

Top 3 takeaways from the last four pieces of major legislation for small and medium-sized manufacturers (IRA, CHIPS, IIJA, and ARP).

We don’t blame you if you haven’t been able to read and absorb the 794,620 words and 7,170,735 characters in these four new pieces of legislation: Inflation Reduction Act, Chips and Science Act, Infrastructure Investment and Jobs Act (IIJA), and the American Rescue Plan Act.

Here are the top 3 things to be aware of for American manufacturers and what to do about each of them:

1. Changes to the R&D Tax Credit – Talk to your existing R&D tax credit provider!
   1. The Inflation Reduction Act expanded the R&D tax credit limit from $250k to $500k by providing an additional $250,000 that can be used to offset the employer portion of payroll tax liability.
   2. The amortization schedule of capitalizing R&E expenses over 5 years for domestic spending (section 174) instead of the year they are incurred has been warned about since the Tax Cuts and Jobs Act.
   3. Sec. 174 capitalization severely complicates the situation for many of our larger clients with NOLs. While it is in place, making the claim that they have R&D to take the R&D credit could actually result in them owing more tax. From one of our expert’s point of view we have put filing their first R&D tax credit on hold with a few clients until the 174 capitalization issue is cleared up.
   4. On March 17th, 2023, a new bipartisan research & development (R&D) bill was introduced by Senators Maggie Hassan (D-NH) and Todd Young (R-IN). This would clarify and fix the biggest issues by ensuring that companies can fully deduct R&D expenses each year and fix provisions for small businesses and startups, which include making the R&D tax credit refundable, raising the credit cap over time, and expanding eligibility.
2. Expanded Access to Loans and Credit for Small Businesses – Visit the list of capital programs and view contacts for your state or territory.
   1. The American Rescue Plan Act reauthorized and expanded the State Small Business Credit Initiative (SSBCI) to provide $10 billion to support small businesses and empower them to access the capital needed to invest in job-creating opportunities as the country emerges from the pandemic.
3. Enhanced Incentives for Qualifying Geographic Areas – Type in your commercial address in this mapping tool to see if you are in an eligible census tract area.
   1. New Market Tax Credit. Low Income Housing Tax Credit. Most Opportunity Zones are also NMTC-qualified census tracts, so this overlap means the two tax incentive programs could fit nicely together. In addition to the NMTC Program, Opportunity Fund projects may also make use of other tax credit programs, such as the Low Income Housing Tax Credit (LIHTC) and the Historic Tax Credit (HTC).

Running a manufacturing business is challenging, even in the best of times. For growing manufacturers, economic incentives and tax credits are an often underutilized or a forgotten element of an operational growth plan. The triggers for these incentives involve hiring, equipment purchasing, and investment in real estate or tangible assets. There is a nice cascading effect during real growth and productivity, where we’ve seen sophisticated manufacturers layer incentives on top of one another that fuel a virtuous cycle. For example, buying or leasing a new facility to house new equipment and additional lines which requires hiring to staff and maintain. Each of these actions has potential incentives that can be applied for and secured.

The objective of offering subsidies and incentives to businesses is to encourage economic and community development through high-paying jobs, diversifying and grow the tax base, encouraging capital investment, redeveloping key neighborhoods, increasing the region’s global competitiveness, and growing business. However, most of this money either goes unclaimed, or to large corporations with teams of tax attorneys and government relations teams.

To recap, here are your three actions to take today:

1. Talk to your existing R&D tax credit provider, especially before you file your annual corporate taxes.
2. Visit the list of capital programs and view contacts for your state or territory.
3. Type in your commercial address in this mapping tool to see if you are in an eligible census tract area.

Obviously there is a lot more to these bills! Any manufacturer working on anything related to clean energy (vehicles, buildings, equipment) or semiconductors should be paying particularly close attention to the programs, guidelines, and application windows as they are announced.

Most of these programs are routed through the Treasury Department, Commerce Department, or the Department of Energy. Guidelines are being written and application instructions and timelines are slowly being rolled out program-by-program so keep an eye on the relevant programs for your business.

About Subcity:
Subcity’s mission is to democratize access to capital and tax credits for America’s small manufacturers. For more information about Subcity, and to see what government incentives might be available to your company, please visit: www.subcity.com

About Gil Gonzales:
Gil Gonzales is the president and co-founder of Subcity. He formerly served as a Senior Economic Development and Public Affairs professional with a 15-year track record in various strategic capacities within state and local government. He has notable experience leading economic development initiatives, legislative advocacy and public affairs while designing and executing strategic plans for effective government outreach and policy at the municipal and state levels. Gil’s roles include bipartisan economic and business policy implementation that drove millions of dollars in state funding, tens of thousands of new jobs created, and billions of dollars in regional capital investment among a series of community development programs throughout the Western United States.

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