December 28, 2015
By Emmalee MacDonald, CPA
The Protecting America from Tax Hikes (“PATH”) Act was signed into law December 18, 2015. Many of its more than 100 provisions are favorable to technology and life sciences companies. It makes permanent some of the benefits that have previously only been extended temporarily. Specifically, the research credit and 100% gain exclusion on qualified small business stock are now permanent tax provisions. In addition, the controversial medical device excise tax has been suspended for 2 years. Here are some of the specifics of the bill:
Research and Development Credit
Not only does PATH finally make permanent the credit that has been extended many times since its original enactment in the 1980s, it also provides for additional benefits to eligible small businesses by permitting these companies to use the credit to offset alternative minimum tax and, in some cases, the employer portion of the FICA liability. It also raises the Alternative Simplified Credit from 14% to 20% of qualified research expenditures.
Moratorium on Medical Device Excise Tax
Currently, manufacturers and importers of medical device taxes must pay a 2.3% tax on the sales price of medical devices which fall under certain provisions of the law. PATH imposes a morato¬rium on the excise tax on medi¬cal devices for 2 years. The tax will not apply to sales during calendar years 2016 and 2017, providing much sought-after relief for medical device companies.
100% Gain Exclusion on Qualified Small Business Stock
The 100% exclusion allowed for gain on the sale or exchange of qualified small business stock held for more than 5 years by non-corporate taxpayers is made permanent. Read more about the specifics of qualified small business stock here.
These are just a few of the provisions included within the new law. Watch for more thought leadership on the PATH Act.