Pennsylvania Lawmakers tout tax breaks, incentives for tech start-ups

Hoping to stimulate the state’s high-tech industries, two Allegheny County lawmakers have introduced legislation that would allow start-ups to
sell tax credits to raise working capital.

By:
Frank Reeves
Pittsburgh Post Gazette
Pittsburgh, PA
http://www.post-gazette.com

The measures, sponsored by state Reps. Tom Stevenson, R-Mt. Lebanon, and Mike Turzai, R-Bradford Woods, also would extend the time
companies can deduct their annual losses against future taxable income.

The proposals, touted yesterday at a news conference at the Pittsburgh Technology Center in Hazelwood, aren’t new and have long been
advocated by leaders of the biotech and high-tech industries. Some originally were recommended by former Gov. Tom Ridge’s Technology 21
Commission. Others were part of a package of business tax cuts House Democrats unveiled in 2000.

One of the measures, which closely resembles a New Jersey program started in 1997, would change the so-called net operating loss
provisions of the tax code by permitting companies to sell their net operating losses to another company at no less than 75 percent of the future
value. Under current law, companies can deduct up to $2 million of annual business losses against future taxable income for 10 years. The net
operating loss provisions have been considered a valuable asset to start-ups, which usually experience losses or small profits in the first years.

These companies, often at the vanguard of the state’s emerging biotech and high-tech economy, can ill afford a heavy tax burden while they
establish themselves. But some argue that many start-ups need working capital more than future tax credits, so another bill would allow
companies that forgo the use of research and development tax credits to "sell" them back to the state. In exchange, they would receive a check
from the state for 75 percent of the future value of these benefits.

Stevenson and Turzai said their legislation was crafted to have minimum effect on the state’s budget, which is confronting a $650 million deficit
for the fiscal year that ends June 30 and possibly could face larger shortfalls next year.

Their legislation would allow the state to repurchase no more than $5 million in research and development credits each year , and would
impose a $5 million cap on the amount of net operating loss transfers or "sales" the state Department of Revenue could approve each year.