From clean air and water to safe roads and bridges, engineering and design firms across the United States spearhead the creation of cutting-edge technologies that enhance and advance our future. As the President and CEO of DJ&A, P.C., headquartered Missoula, we are proud of the work we do in civil and environmental engineering to help support communities throughout Montana and beyond.
To continue to meet unprecedented challenges with novel solutions, it’s critical that engineering companies like ours engage in research and development (R&D) to find innovative ways to approach problems old and new. However, a recent change to our tax code is stifling this commitment to R&D and threatening the industry’s collective development to the detriment of our communities.
This tax change, which took effect in 2022, requires businesses to deduct R&D expenses over five years instead of when they occur, leading to devastating tax consequences. This revision in the tax code puts immense financial strain on small engineering firms that innovate while they serve the public.
This is a hard reality to face because many smaller engineering firms, including our own, support some of the nation’s highest-profile projects, such as our environmental engineering work to upgrade the wastewater system at Death Valley National Park. We at DJ&A are honored to be the engineering company of record for the project because our work will not only benefit the park’s 1 million annual visitors, but will also protect the park itself – a testament to the quality work we do. However, this revision to the tax code presents financial stress that could hinder our ability to hire qualified staff and develop innovative solutions that will benefit our national parks and other critical infrastructure projects for the foreseeable future.
While it can be time-intensive and expensive, R&D is an essential part of the engineering profession because it’s our job to design safe and reliable infrastructure for our communities. With so many resources and manpower involved in R&D, it is imperative that engineering firms have financial flexibility to pivot where needed and remain operational, particularly if Congress’ infrastructure ambitions are to be realized.
But this tax change will only lead to higher tax burdens for our small businesses, inhibiting their ability to grow and engage in R&D that pushes innovation forward. Studies show that this lapse in our tax laws will decrease R&D spending in the U.S. by $4.1 billion per year, causing a loss of 23,400 direct R&D jobs in each of the first five years of this tax change going into effect. At the same time Congress is disincentivizing R&D with onerous tax burdens, China’s tax authority recently extended its policy of a 200% “pre-tax super deduction” for R&D expenses.
It’s time for Congress to recognize that this provision hurts smaller firms and the communities they serve while making our Country less competitive and less secure. Our leaders must pass legislation in the House and Senate to revert R&D taxation to what it once was in order to protect innovation in American engineering. I want to thank Sen. Steve Daines in particular for cosponsoring bill S. 866 as well as urge Sen. Jon Tester and the rest of the Congressional delegation to support fixing R&D amortizations so engineering firms of all sizes can continue to thrive.
This piece orginially appeared on November 12, 2023 in the Flathead Beacon, and in the Missoulian and the Helena Independent Record on on November 14, 2023. Chris Anderson is CEO of DJ&A Engineering, headquartered in Missoula, with offices throughout the Western U.S.