Transcript Slide 1

The Massachusetts’ Life Sciences Bill
New State Tax Incentives for Certified Life
Sciences Companies
Massachusetts Medical Device Industry Council
Briefing for MassMEDIC Members
March 6, 2009
Andrew J. Wilson (Boston)
Sylvia F. Dion (Boston)
Massachusetts Life Sciences Bill - Agenda
 Presentation Agenda:
 General overview
 Focus on state tax specific provisions
 Summary and conclusions
 Q&A
2
© Grant Thornton LLP. All rights reserved.
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”)
© Grant Thornton LLP. All rights reserved.
3
Overview of Incentives for
Life 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
© Grant Thornton LLP. All rights reserved.
4
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
© Grant Thornton LLP. All rights reserved.
5
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
© Grant Thornton LLP. All rights reserved.
6
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
© Grant Thornton LLP. All rights reserved.
7
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
apply prior to announcement of expansion plans
© Grant Thornton LLP. All rights reserved.
8
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
© Grant Thornton LLP. All rights reserved.
9
Massachusetts Life Sciences Tax Incentives
Credit 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
© Grant Thornton LLP. All rights reserved.
10
Massachusetts Life Sciences Tax Incentives
Credit 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
© Grant Thornton LLP. All rights reserved.
11
Massachusetts Life Sciences Tax Incentives
Credit 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
© Grant Thornton LLP. All rights reserved.
12
Massachusetts Life Sciences Tax Incentives
Credit 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
© Grant Thornton LLP. All rights reserved.
13
Massachusetts Life Sciences Tax Incentives
Income 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
© Grant Thornton LLP. All rights reserved.
14
Massachusetts Life Sciences Tax Incentives
Income 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
© Grant Thornton LLP. All rights reserved.
15
Massachusetts Life Sciences Tax Incentives
Income 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
© Grant Thornton LLP. All rights reserved.
16
Massachusetts Life Sciences Tax Incentives
Sales 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
© Grant Thornton LLP. All rights reserved.
17
Massachusetts Life Sciences Tax Incentives
Conclusions
Tax incentive provisions are extremely beneficial 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 to
announcing expansion plans
© Grant Thornton LLP. All rights reserved.
18
Any questions?
Thank you for joining us today!
© Grant Thornton LLP. All rights reserved.
19
Contact Information
• Andrew J. Wilson, Tax Partner, Boston, MA
617-848-4900
[email protected]
• Sylvia F. Dion, Tax Senior Manager, Boston, MA
617-848-4997
[email protected]
© Grant Thornton LLP. All rights reserved.
20