A new version of Startup 2.0 was introduced in both the House and Senate last week. Startup 3.0 is co-sponsored by Senators Jerry Moran (R-Kan.), Mark Warner (D-Va.), Chris Coons (D-Del.) and Roy Blunt (R-Mo.) and Representatives Loretta Sanchez (D-Calif.) and Michael Grimm (R-N.Y.). Startup 3.0 continues the mission of its predecessor legislation, intending to boost our economic recovery by providing greater support for high-paying, high-skilled jobs in science, technology, engineering and mathematics (STEM). Included in this legislation is a revised approach to providing a research and experimentation (R&E) tax credit to small businesses, drawn from S.193, “Startup Innovation Credit Act of 2013.”
The Startup Innovation Credit Act of 2013 would allow startup businesses to use a portion of the R&E credit to offset payroll taxes. We view this as a positive improvement. Typically, businesses do not show a federal tax liability during the startup phase, and therefore cannot benefit from the existing R&E credit, which can only be offset against a federal tax liability. However, startup businesses do have employees and pay payroll tax, so allowing them to offset the R&E credit provides an immediate economic benefit to these companies.
In order to encourage investment in small businesses, Startup 3.0 would also make permanent the 100 percent exclusion on capital gains from investments in small startup companies. This provision requires that qualifying small business stock must have been acquired at original issue and held for at least five years. Extended through 2013 in the fiscal cliff legislation, this 100 percent exclusion is now set to expire at the end of 2013.
Startup Act 3.0 would also eliminate the artificial per-country caps for employment-based immigrant visas. A primary goal of tech employers is to fill these critical STEM jobs with the best talent and eliminating this unnecessary barrier is the right step. Additionally, foreign students who receive post-graduate degrees from U.S. universities in STEM concentrations would be given green cards so they could stay in this country; this also would apply to foreign nationals who start new businesses in the U.S.
Startup 3.0 provides simple, straightforward solutions to some of the problems facing small startup companies. It encourages capital investment in startups; incentivizes these businesses to invest in research and experimentation; and removes some of the barriers that currently limit access to the most talented workforce. CompTIA has issued its support for this legislation, which would advance innovation, small businesses and our national economy.