An Inside Look At The Biotech Tax Incentives | Massachusetts certified firms will benefit greatly
The state’s Department of Revenue has issued a draft of the tax incentives in the $1 billion 10-year life sciences bill that was passed earlier this year.
The Massachusetts Life Sciences Center, which oversees the $1 billion, believes these incentives, individually and collectively, will help biotech companies already here and attract those from other states.
Destined For Success
The draft helps bring the bill’s benefits for life sciences companies into better focus. It also makes you wonder how a biotech company could fail once it’s certified. As a spectator and not a participator in the biotech industry, I realize it’s easy for me to say that, but read on.
First, these tax incentives can only be awarded to certified life sciences companies. While the exact criteria for certification is still being worked out, it will be based at least in part on the company’s projected return on investment. The ROI is based on the projected taxable income earned by the company’s permanent, full-time employees.
The certification is granted by the center’s board of directors and is good for five years. There’s a provision for it be annually evaluated and can be revoked if the proposed return on investment does not materialize.
One of the standout incentives is that certified companies can carry their net operating losses forward for 15 years instead of the usual five years, deducting the losses on the corporate tax filings for a longer period of time.
The Massachusetts Biotechnology Coun-cil and the DOR differ a bit on how long those losses should carry forward. The DOR thinks that losses should only go back to five years before the Jan. 1, 2009 start of the program, while the council is looking for 15 years. Ultimately it’s up to the Life Sciences Center, but the final decision should be an interesting one.
It can take at least 10 to 15 years and up to $1 billion for many biotech and drug companies to develop a product, hence the additional time for losses.
It also refunds 100 percent of the Federal Drug Administrations’ user fees, which can get as high as $300,000 or more depending on the product and whether a clinical trial is necessary, with some drugs involving clinical trials hitting $1 million.
Those two incentives alone are going to be incredibly beneficial. But wait, there’s more.
There are also tax deductions for qualified clinical testing expenses if the drug is for rare diseases or conditions. There is also a 10 percent tax credit that companies can carry forward for 10 years, and if they locate in an Economic Opportunity Area they can get an additional 2 percent credit. Companies can also take the existing research and development tax credit as a refundable credit and will be exempt from sales taxes on purchases made to build, alter or repair research, development or manufacturing facilities.
Lest you think it is all too much, let me point to a recent example of how competitive states are getting in their moves to keep and attract biotech companies.
Commonwealth Competition
At the same time Massachusetts was passing and signing the $1 billion life earlier this year, Maryland announced a similar $1.1 billion effort to do the same here.
A few short weeks ago, Biomere LLC, a subsidiary of Worcester-based Biomedical Research Models Inc., announced it would be opening its corporate headquarters in Baltimore next year. Dennis Guberski, the company’s founder, wanted to locate a subsidiary in Maryland so he could get work from federal agencies like the National Institutes of Health, which require many companies it works with to be within two hours driving distance.
In any case, the deal brought Biomere an exclusive contract to provide laboratory animal services to companies that locate in the 1.2 million square foot park. In addition, investors can get back half their investment in state income tax. Maryland’s economic development financing arm will also guarantee 80 percent of the company’s loans.
Biomere got a great deal and it planned to locate within two hours of NIH, so in a sense Maryland didn’t offer a better deal that took Guberski south, he was going there anyway. But that not might be true of companies that are starting out or those who want to relocate to the East Coast or just somewhere that isn’t as expensive as California.
So Massachusetts did what it had to do to remain a competitive place for biotech to grow bigger and better, and hopefully that will benefit all of the state’s residents in some way shape or form.
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Department of Revenue Web Site
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