Tech groups voice support for tax reform

Groups representing the technology industry criticized the current tax system on Tuesday and called for reforms.

The Information Technology Industry Council (ITI) and TechNet — two D.C. trade associations that represent major tech firms such as Apple, Amazon and Google — took advantage of Senate Finance Committee Chairman Orrin Hatch’s (R-Utah) call for public feedback on tax reform, sending the senator letters outlining their positions.

{mosads}Both organizations endorsed switching to a territorial tax system in which corporations would be taxed only the basis of income inside the country they’re based in. The U.S. currently taxes companies on their income at home and abroad. Corporations, however, don’t have to pay taxes on their income abroad until they repatriate it back home.

Supporters of a territorial system argue it could help bring lost tax dollars back into the U.S. The Institute on Taxation and Economic Policy estimates that Fortune 500 companies hold $2.6 trillion in earnings offshore, depriving the U.S. government $767 billion in federal income tax.

ITI called for a “bifurcated approach” that would apply “an 8.75 percent tax to accumulated foreign earnings held in cash and cash equivalents and a 3.5 percent tax to accumulated foreign earnings invested in other assets,” to help bring such money back into the U.S.

ITI and TechNet said a territorial tax coupled with base-erosion policies — measures to keep companies from avoiding taxes overseas — are potentially the most important portions of corporate tax reform.

The two organizations also advocated for tax policies that will spur, or least not deter, research and development in the U.S.

The National Venture Capital Association (NVCA), a trade group representing startups and venture capital, voiced a similar position in a letter it wrote, calling for a research and development tax credit.

“A typical startup will still be quite early in the process of development when the size/age limits eliminate their ability to benefit from the R&D credit,” the group wrote.

“This creates a strange dichotomy where startup companies cannot access the benefits of the R&D credit when they need it the most,” the NVCA’s letter continued. “We believe that these improvements to the R&D credit will provide a fair and material benefit for American startups and will be a strong step forward in shoring up our leadership in entrepreneurship.”

NVCA also joined TechNet in calling for relaxed capital gains taxes on investments in startups.

It railed against increases in carried interest capital gains, saying that would harm innovation by inhibiting startup investment. Meanwhile, TechNet called for a “permanent exclusion of federal and state capital gains taxes on investments in startup businesses that are held for more than five years.”

The White House is currently working with members of Congress to have a tax bill ready by the first or second week of August.

Both branches have demonstrated a willingness to work with technology interests on their tax reform wish lists.

But observers think the timeframe isn’t realistic and expect the process to take much longer.