The Massachusetts Life Sciences Center and the Secretary of Administration and Finance recently released initial technical information and a draft application for the Life Sciences Tax Incentive Program. The Program, subject to continued appropriations, will provide $25 million annually in tax incentives to qualifying life sciences companies over the next ten years for prospective expenses. The Program becomes effective on January 1, 2009 and the Massachusetts Life Sciences Center will is scheduled to begin accepting online applications on January 2, 2009.
What Incentives Are Available?
The tax incentives are intended to expand employment in the life sciences and to promote research, development, manufacturing and commercialization in the sector. Qualifying life sciences companies will be able to apply for the following tax incentives:
- Life Science Investment Tax Credit: Refundable tax credit for personal income tax and corporate excise tax for up to 10% of the cost of qualifying property,
- Life Sciences Research Credit: Credit to reduce corporate excise tax for legally mandated clinical trial activities in and outside of Massachusetts,
- Refundable Research Credit: Refundable credit exceeding the claimable amount under section 38M,
- Extension of Carry Forward of Net Operating Losses: Losses eligible to be carried forward as of January 1, 2009 may be carried forward during a 15-year period (in lieu of the current 5-year period),
- Elimination of the Throwback Provision in the Sales Factor Used in Apportioning Corporate Income: Life sciences companies may be deemed taxable in the state of a purchaser for property that is delivered or shipped to another state, thereby reducing the sales factor for the corporate income tax apportionment formula,
- FDA User Fees Credit: Refundable credit for the full cost of user fees paid on or after June 16, 2008,
- Deduction for Qualified Clinical Testing Expenses: Deduction equal to the allowable credit under federal law for clinical expenses relating to rare diseases and conditions,
- Sales and Use Tax Exemption: Life sciences companies may be deemed to be "research and development" corporations for sales and use taxes relating to materials, tools, fuels and machinery,
- Sales Tax Exemption for Personal Property: Exemption for personal property used in construction of research, development and manufacturing facilities, including utility support systems.
How Do We Become Eligible?
Life Sciences Company Certification: Only "certified life sciences companies" are eligible to apply for these tax incentives. Under the statute, "life sciences" includes a wide spectrum of advanced and applied sciences that have the potential to lead to medical or therapeutic applications. The broad definition includes, but is not limited to, bioinformatics, biomedical engineering, biopharmaceuticals, chemistry technology, medical devices, nanotechnology, and stem cell research. Eligible "companies" include business corporations, partnerships, firms, unincorporated associations or any other entities engaged in life sciences research, development, manufacturing or commercialization.
Once a company has been certified, it will remain certified for five years contingent on the filing of annual reports documenting progress on employment and revenue targets established in the certification application. To be considered for certification, a company must provide a summary of the company's:
- business and technology,
- existing funding,
- employee structure,
- projected revenues over the next five years,
- plans for increasing revenue and employment, and
- a certification of good standing from the Department of Revenue.
Tax Incentive Application for 2009: In conjunction with the life sciences company's certification application, an interested company must also apply for specific tax incentives for future expenses. Applying for tax incentives does not guarantee that benefits will be made available to an applicant. In fact, the Life Sciences Center may limit an awarded tax incentive in any appropriate manner, including specific dollar amounts or time duration.
The application requires that the applicant prioritize the tax benefits for which it is applying and estimate the cumulative value of each benefit. An interested company should consider which tax incentives might further its growth and expansion plans most directly. The applicant must provide information regarding the company's:
- potential for creating technological advancements and medical treatment breakthroughs,
- potential for attracting additional resources to the Commonwealth,
- plan for environmental sustainability,
- plan for promoting corporation governance best practices, and
- if applicable, the capital project underlying the tax benefit being sought.
The Life Sciences Center intends to treat all applications as public documents subject to the Public Record Act. The initial application, in draft form, is available now. Although current guidance from the Life Sciences Center and the Secretary only provides a basic framework of the program, additional clarification on procedures and policies is expected shortly.
Future Year Incentives: Currently, there is no technical guidance on future year applications or tax incentives. In light of the annual $25 million limit on incentives, it appears that the Program may require annual reapplication for incentives in an effort to control overall costs. In light of the Commonwealth's current budget crisis, and the need for continued appropriations in order to fund the Program, it is possible that future incentives will be reduced or eliminated.
What Should We Do Now?
Companies that are interested in applying for the incentives should act now. The entire $25 million of incentives for 2009 will become available January 2, 2009, and will likely be allocated quickly.
Interested companies should:
- Study the on-line application carefully (available at www.masslifesciences.com).
- Identify projects that your company plans to carry out in Massachusetts next year (and possibly in future years as well). Such projects can be "bricks and mortar" or otherwise (e.g., new areas of research or clinical trials).
- Quantify the benefits to the Commonwealth of your project(s) in terms of anticipated revenues to the company, job creation, etc.
- Calculate which tax incentives will create the most direct benefits to the company based on budgeted costs of the project(s).
- Rank-order the tax incentives that the Company will request.
- Draft the required statements on your recruiting and diversity plan, environmental sustainability plan and corporate governance, if policies are not already in place.
- Assemble the documentation required by the application, e.g., a certificate of good standing from the Massachusetts Department of Revenue, the company's banking agreements if it participates in the Massachusetts Capital Access Program, any agreements already in place with the Massachusetts Economic Assistance Coordinating Council for proposed projects.
Beware Of Disclosing Company Confidential Or Proprietary Information
In completing the application, companies should take care in determining which sensitive information will be submitted to the Life Sciences Center. At present, the guidance from the Life Science Center makes no provision for protecting the contents of any application and, hence, applicants should assume that any information submitted will become available to the public, including your competitors.
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.