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The Silver State has long been known as a hotbed for businesses of all kinds, but now thanks to a seemingly small tax code change, our state’s small businesses face an unsustainable tax burden. If something is not done soon to rectify this issue, many of the enterprises that support and serve Nevada’s communities are at risk of closing their doors for good.

For decades, businesses could deduct research and development (R&D) expenses in the same year they were incurred, encouraging exploration and incentivizing innovation. But beginning in 2022, small businesses that engage in R&D must now amortize those expenses over five years, meaning higher taxes and less financial flexibility.

As the Nevada state director of the National Federation of Independent Businesses (NFIB), I am concerned about this tax change and even more worried that time may be running out for our leaders to fix it. Nevada is home to over 300,000 small businesses, and 42.8% of workers are employed at a small business. As smaller companies face higher tax bills thanks to this new way R&D activity is expensed, we risk not only stifling competitiveness but also economic growth and development to the point where many small businesses — particularly those that specialize in R&D, such as engineering firms — simply can’t succeed.

For decades, the ability to deduct R&D expenses in the year they were incurred has been a critical tool for research-oriented enterprises. This provision encouraged innovation by allowing firms to quickly recoup some of their investment, fostering a cycle of continuous development and improvement. Plus,this immediate deduction was a lifesaver for small enterprises operating on thin margins and facing intense competition. It meant being able to hire, train and retain employees critical to operations and meeting overhead costs.

The shift to a five-year amortization period disrupts this dynamic, especially for Nevada’s small engineering companies. They often lead the charge in developing new technologies and solutions critical to our state’s growth in sectors like renewable energy and mining, and infrastructure like roads and bridges. The extended amortization period means these businesses now face a prolonged wait to realize the tax benefits of their investments, creating a cash flow bottleneck and throwing administrative and operational costs in jeopardy — including payroll.

Moreover, this policy shift places Nevada’s small businesses at a disadvantage relative to larger corporations. Big firms, with their larger capital bases and diverse revenue streams, are better positioned to absorb the delayed tax relief. Small businesses, on the other hand, rely heavily on immediate deductions to maintain liquidity and fund their operations.

Our state has always been a place where ideas can take root and grow, and there are few better places to call home if starting a company. As the voice of small business in Nevada, the NFIB urges policymakers to reconsider this change. By returning to immediate deduction of R&D expenses, we can ensure that Nevada remains a spark plug of innovation and growth.

We encourage all of Nevada’s congressional delegation to join Sens. Catherine Cortez Masto and Jacky Rosen, as well as Reps. Dina Titus and Susie Lee in moving legislation through the Senate and House to reverse the five-year amortization mandate on R&D and return it to its previous form. Doing so allows us to protect our economy and our future while keeping innovation strong.

This piece originally appeared in the Las Vegas Sun on December 24, 2023. Tray Abney is Nevada state director of the National Federation of Independent Business.


December 24, 2023

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