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Massachusetts Life Sciences Bill: Tax Incentives for Certified Companies

Learn about the Massachusetts Life Sciences Bill and the tax incentives it provides to certified life sciences companies. Discover the benefits and qualifications, and how to take advantage of these incentives.

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Massachusetts Life Sciences Bill: Tax Incentives for Certified Companies

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  1. The Massachusetts’ Life Sciences BillNew State Tax Incentives for Certified Life Sciences CompaniesMassachusetts Medical Device Industry CouncilBriefing for MassMEDIC MembersMarch 6, 2009Andrew J. Wilson (Boston)Sylvia F. Dion (Boston)

  2. Massachusetts Life Sciences Bill - Agenda • Presentation Agenda: • General overview • Focus on state tax specific provisions • Summary and conclusions • Q&A

  3. Massachusetts Governor Signs Life Sciences Bill • June 16, 2008, Governor Patrick signs H.B. 4829, An Act Providing for the Investment in and Expansion of the Life Sciences Industry in the Commonwealth • Provides for $1 billion in incentives to encourage the expansion of the life sciences industry in Massachusetts • $500M in capital infrastructure; $250M in science grants and small business assistance; $250M in state tax incentives • Approves the creation of the Massachusetts Life Sciences Center (“MLSC”)

  4. Overview of Incentives forLife Sciences Companies • Provides tax incentives for certified investments made by Certified Life Sciences Companies between January 1, 2009 through December 18, 2018 • All incentives programs administered by the MLSC • Maximum tax incentives to be awarded annually will be limited to $25 million per year • Aggregate amount to all recipients for the year • Benefit is subject to the cap in the year it is awarded, not the year in which the benefit is actually realized

  5. Overview of Incentives for Life Sciences Companies • The Life Sciences Act broadly defines what comprises “Life Sciences” • Definition includes numerous areas of advanced and applied sciences, including (but not limited to): Agricultural biotechnology, biogenerics, chemical synthesis, chemistry technology, diagnostics, drug delivery, drug discover, genomics, image analysis, marine biology, marine technology, medical device, nanotechnology, nucleic acids research, proteomics, regenerative medicine, RNA interference, stem cell R&D, life sciences technology

  6. Overview of Incentives for Life Sciences Companies • The Life Sciences Act also broadly defines a Life Sciences “Company”as any of the following: • Business corporation • Partnership • Firm • Unincorporated association or other entity • Affiliates of any of the above • Engaged in life sciences research, development, manufacturing, or commercialization in the Commonwealth

  7. Massachusetts Life Sciences Center • A quasi-public agency of the Commonwealth of Massachusetts • Seven governor appointed board members; two from government, one from a Massachusetts university, four targeted business appointments (CEO, researcher, physician) • Has full authority to certify Life Sciences Companies and grant awards on a competitive basis • Charged with administering the various tax incentives programs and the approval of specific tax incentives to each Certified Life Sciences Company 7

  8. Certification of Life Sciences Companies • Certification lasts for up to 5 years • Certification applications must include an estimate of : • Projected incremental state revenues • Permanent jobs and capital investment to be generated by the applicant’s expansion project • Project plan must be supported by independently verifiable information and annual progress reports required • Clawback provisions apply if the company fails to complete at least 70% of its project • Life Sciences Companies considering expansion should applyprior to announcement of expansion plans 8

  9. Massachusetts Life Sciences Tax Incentives • Tax Incentives fall into three general areas: • Income tax credits – dollar-for-dollar reduction in a company’s Massachusetts state tax liability • Income tax beneficial provisions – a reduction in the amount of a company’s income subject to Massachusetts corporate tax • Sales tax beneficial provisions - exemption from sales tax for equipment and other purchases normally subject to Massachusetts sales tax • In general, the effective date of all tax incentive provisions is for taxable years beginning on or after January 1, 2009 • However, for FDA User fee, effective for all costs incurred on or after June 16, 2008 9

  10. Massachusetts Life Sciences Tax IncentivesCredit Provisions • FDA User Fees Credit • Credit equal to 100% of qualifying user fees paid to the U.S. Food and Drug Administration (USFDA) • Claimed in year in which application for licensure to manufacture drug is approved by USFDA • More than 50% of R&D costs for the drug must have been incurred in Massachusetts • 90% of credit may be refundable • Companies without taxable income may be able to qualify for cash payments • Effective for all costs incurred on or after June 16, 2008 10

  11. Massachusetts Life Sciences Tax IncentivesCredit Provisions • Life Sciences Investment Tax Credit (ITC) • Credit for investment in qualifying property • Similar to the current Massachusetts ITC • Credit equal to 10% of the cost of qualifying property, constructed, reconstructed, or erected • Property must be used exclusively in Massachusetts • Can apply to purchases made after 1/1/09, even if construction began before this date • Limited if qualify for Economic Opportunity Area (EOA) credit on same property • 90% of credit may be refundable • Companies without taxable income may be able to qualify for cash payments 11

  12. Massachusetts Life Sciences Tax IncentivesCredit Provisions • Beneficial modification to existing (pre-Act) research credit (§38M credit), and • Introduction of Life Sciences research credit (§38W credit) • Certified life sciences companies taking §38M research credit can opt to have existing credit become refundable • Unexpired §38M research credit carryforwards from 2008 and prior years are eligible to become refundable • 90% of credit may be refundable • Companies without taxable income may be able to qualify for cash payments 12

  13. Massachusetts Life Sciences Tax IncentivesCredit Provisions • New §38W Life Sciences Research Credit • Calculated and applied similarly to the §38M research credit • 15 year carryover (vs. 5 year carryover for §38M credit) • Expenditures incurred for legally mandated clinical trials outside of Massachusetts will qualify • Such expenditures would not normally qualify for the §38M research credit • Unlike USDA User Fee credit, the ITC, and the §38M research credit, the new §38W life sciences research credit is not refundable 13

  14. Massachusetts Life Sciences Tax IncentivesIncome Tax Provisions • Elimination of throwback provision: • Certified Life Sciences companies may not be subject to the Massachusetts apportionment throwback rule • Throwback - special tax rule relating to the calculation of how much of an entity’s income becomes subject to Massachusetts taxation • This provision may help to reduce the amount of Massachusetts income subject to corporate tax • This benefit applies to companies with positive Massachusetts taxable income 14

  15. Massachusetts Life Sciences Tax IncentivesIncome Tax Provisions • Net Operating Loss (NOL) Carryover Expansion • Certified Life Sciences Companies may carryover NOLs for up to 15 years • For non-certified life sciences companies (and other corporate taxpayers), the current NOL carryover period is 5 years • Pre-certification unexpired NOLs can also be carried over 15 years (less the number of years expired) • This provision may help to reduce the amount of Massachusetts income subject to tax over the long-term 15

  16. Massachusetts Life Sciences Tax IncentivesIncome Tax Provisions • Deduction for Orphan Drug Clinical Testing Expenses • Certified Life Sciences Companies may deduct expenses related to orphan drug clinical testing activities that are claimed as a federal tax credit • This provision reduces the amount of Massachusetts income subject to tax in the current year, or • Can increase the amount of current year loss than can be carried forward and used to reduce Massachusetts income subject to tax in a future year 16

  17. Massachusetts Life Sciences Tax IncentivesSales Tax Provisions • Sales Tax Exemptions • Full exemption for costs incurred by a Certified Life Sciences Company relating to the construction or repair of research, manufacturing or ancillary support operations • Certified Life Sciences Companies are deemed to be a research and development company • Massachusetts sales & use tax exemption for certain equipment and consumables 17

  18. Massachusetts Life Sciences Tax IncentivesConclusions • Tax incentive provisions are extremelybeneficial to Certified Life Sciences Companies • Consider expansive definition of Life Sciences Companies, both in terms of areas that qualify and legal form of organization • Companies at various stages can benefit, as application allows ability to prioritize tax incentives based on current stage needs • Application process should be completed prior toannouncing expansion plans 18

  19. Any questions? Thank you for joining us today! 19

  20. Contact Information • Andrew J. Wilson, Tax Partner, Boston, MA 617-848-4900 andrew.wilson@gt.com • Sylvia F. Dion, Tax Senior Manager, Boston, MA 617-848-4997 sylvia.dion@gt.com 20

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