Last month, the Pennsylvania Department of Transportation announced its seventh annual PennDOT Innovations Challenge, encouraging high school students across the commonwealth to use their creativity and problem-solving skills to decipher a real-world transportation challenge.
These are the kinds of programs that will entice the next generation of students to join the ranks of innovators who make our state a better place. But as newly minted engineers graduate from programs at Carnegie Mellon or Penn State, they will need a place to call home. Unfortunately, a change in the tax law is making it harder for Pennsylvania’s engineering firms to stay afloat. Hot Food Packaging
For decades, our country incentivized innovation by providing businesses with immediate deductions for investments in research and development (R&D). However, a recent change has forced companies to spread out those expenses over a five-year period instead resulting in a spike in taxes, which in many cases is current unrealized income.
For engineering firms, many of which engage in specialized R&D to solve niche challenges, this is a hard pill to swallow. It increases their tax burden, increases borrowing during the highest rates we have seen in a decade, restricts cash flow, and can make overhead costs nearly unsustainable. While engineers across the state want to spearhead innovation that enhances communities in Pennsylvania and beyond, the tax change has hindered their efforts.
As Executive Director of the American Council of Engineering Companies of Pennsylvania, it’s my responsibility to look out for the best interests of our member companies and industry. With this tax provision in place, our engineering and design firms are facing significant tax liabilities that could prevent them from meeting operating costs, affecting quality of work and employee benefits.
This provision unnecessarily prolongs the effects of R&D expenses and will cripple Pennsylvania’s engineering companies – especially our smaller businesses – and could even force firms to close their doors for good.
This tax change not only threatens engineers here in Pennsylvania, but it also puts the health of the greater industry at risk. If companies continue to amortize R&D expenses in accordance with the new provision, tens of thousands of jobs will disappear over the next five years. This will stunt American engineering companies in their day-to-day business and stifle their ability to invest in R&D – allowing international competitors to take the reins of innovation while leaving the U.S. in the dust.
Nationally, the U.S. R&D tax credit ranks 24th as other countries have leaned in to strengthen their economy with R&D innovation incentives.
With this much at stake, we must act quickly to protect hardworking engineers, their companies, and the innovations they’re pursuing to push Pennsylvania and the world forward. Thankfully, some members of Congress recognize the threat of this tax code lapse and have put forth bills in both the House and Senate to rectify it, but we need more support.
I urge U.S. Sens. Bob Casey and John Fetterman, to join a bipartisan group of 13 of Pennsylvania representatives and repeal the amortization mandate to protect R&D before the end of the year. Here in Pennsylvania, advancements in engineering fuel our biggest industries, ensuring that our communities and economy can continue to thrive.
Brent Sailhamer is the Executive Director of the American Council of Engineering Companies of Pennsylvania.
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