Point of View

NC needs to keep job-creating tax credits

June 12, 2013 

As Gov. Pat McCrory and North Carolina legislators consider rewriting the state tax code, we urge them to focus on policy changes that will encourage job creation and economic growth. One of the most powerful sources of both is innovation.

Two provisions of our current tax code are critical to our innovation economy. For established companies, the Research and Development Tax Credit encourages investment in the commercialization of new technologies. For early-stage companies, the Qualified Business Venture Tax Credit, sometimes known as the QBV credit, helps attract investments that pay for early stages of product development.

The R&D Tax Credit helps keep North Carolina competitive in the worldwide race to turn new science in to new products – and new jobs. Forty-four states have some sort of tax benefit for research and development. And last week, legislators in Texas – which currently has no R&D incentive – passed an R&D tax credit and sent it Gov. Rick Perry for signature.

In North Carolina, our R&D Tax Credit is a strong performer. In 2009, the UNC Center for Competitive Economies found the R&D Tax Credit is positively correlated with job growth. Equally as important, the center noted that the credit is “distinct from other investment-based tax credits in that it is available to companies regardless of their industry, business type, or size.” The center found that the credit’s flexibility “enhances the prospect of its use by firms in distressed areas and incents (or rewards) innovative corporate strategies that undergird growth companies regardless of industry.”

The QBV credit has been part of North Carolina’s tax code since the late 1980s. It rewards entrepreneurism by spurring investment in early-stage businesses. These early investments in turn position companies to attract much larger amounts of “follow-on” investment from venture funds and public equity markets.

A study of the QBV credit by the N.C. Biosciences Organization in 2009 found that, between 1999 and 2008, companies registered for the credit attracted more than $2 billion in start-up, venture and public equity capital. The cost of the credit during the 10-year period was $62 million, indicating a return on the state’s investment of more than 30 to 1.

Tax reform is clearly needed in North Carolina, and members of our associations applaud our state leaders for tackling the job. A guiding principle must be whether a tax change will help grow our economy and create jobs. Extending the R&D and QBV tax credits is consistent with this principle.

Brooks Raiford is president of the N.C. Technology Association, a statewide trade association of over 600 member groups. Sam Taylor is president of the N.C. Biosciences Organization, a trade association of 150 member groups.

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