Does North Carolina’s Senate Budget Stifle Innovation?

Two industry groups laud the budget’s plan for lowering corporate and personal income taxes and changing the way corporate income taxes are calculated.

by David Ranii, The News & Observer / June 26, 2015
The North Carolina Biosciences Organization opposes the Senate plan to end state funding for the N.C. Biotechnology Center. Pictured above is N.C. Biotechnology Center's exhibit at the BIO International Convention in Philadelphia this June.

(TNS) -- Industry groups representing technology and life sciences companies are lobbying against provisions in the state Senate budget that they say would hurt North Carolina’s ability to attract and nurture innovative businesses.

“I think North Carolina’s reputation as an innovation state is at stake in this conference process,” said Sam Taylor, president of the N.C. Biosciences Organization, referring to the negotiations between the Senate and House regarding their disparate budgets. “If we don’t step up and defend it, we could lose it.”

Both NCBIO and the N.C. Technology Association laud the Senate budget’s plan for lowering corporate and personal income taxes and changing the way corporate income taxes are calculated. But they’re opposed to some of the tradeoffs the Senate included to pay for those cuts.

“Our constituency is very supportive of simplification and overall (tax) rate reduction,” said Brooks Raiford, president and CEO of NCTA, the technology association. “The concern would be taking away proven tools to drive investment in North Carolina in innovation-oriented jobs and the innovation sector.”

Among the two groups’ hot-button issues are Senate plans to end the R&D tax credit, reduce a tax break on research and development equipment and expand the sales tax to cover maintenance and repair services. The latter could be a major expense for small companies that outsource maintenance and repair on expensive equipment, Taylor said.

In addition, NCBIO opposes the Senate plan to end state funding for the N.C. Biotechnology Center.

The House budget would maintain $13.6 million in funding for the center, which is based in Research Triangle Park and is in essence a support organization for the life sciences industry. The industry includes pharmaceutical, biotech and medical device companies as well as contract research organizations that help drug companies develop new medicines.

Meanwhile, NCTA also is against the Senate plan to end sales tax breaks for corporate data centers.

Sen. Brent Jackson, an Autryville Republican and one of the main budget writers, wrote in an email that the budget needs to be viewed in the overall context of the tax reform the legislature began in 2012. That effort, he said, has focused on ending tax loopholes and special treatment while reducing overall taxes for individuals and businesses in order to stimulate economic growth.

“The finance provisions in the Senate budget are simply a continuation of that successful policy,” Jackson wrote. “They continue to chip away at the carve-outs and loopholes that have accumulated over the years while simultaneously lowering the personal income tax rate for all North Carolinians.”

But the business groups argue that changes such as ending the R&D tax credit will put North Carolina at a disadvantage in the economic development arms race with other states.

“We are currently one of 38 states, 39 if you count us, that has R&D credits,” Taylor said. “The R&D credit is kind of like a centerpiece of your R&D brand. Can you be a R&D hub without an R&D tax credit? Nobody’s tried.”

The R&D tax credit expires this year unless legislators take action. The tax credit isn’t included in the House budget either.

Raiford said companies looking to beef up their R&D efforts “will naturally be inclined to gravitate towards states that have a more overtly innovation-friendly tax code.”

Angel investor Bill Spruill said the Senate budget “creates greater uncertainty from an investor perspective” by raising questions about how committed the state is to nurturing the great technology coming out of its research universities. Spruill also is managing partner of Global Data Consortium, an international data brokerage firm based in Raleigh.

Serial entrepreneur Richard West, who has co-founded four life sciences companies, said ending funding for the Biotechnology Center would be a huge mistake.

“It takes a supportive ecosystem to build a life sciences company,” said West, whose latest venture, Baebies, is developing and commercializing newborn screening tests. “The Biotech Center has always been a hub of life sciences activity.”

Baebies received a $500,000 loan from the Biotech Center, as did West’s previous company, Advanced Liquid Logic, which was sold for up to $96 million in 2013.

“The Biotech Center got about $1 million back on that $500,000 loan,” West said. “They’re not giving it away.” The Biotech Center, he said, got stock warrants in conjunction with its loan.

Jackson, the senator, noted in his email that he believes that the Biotechnology Center “has been an effective program” but that subcommittee chairs who evaluated the programs under their purview felt the money “could be used more effectively elsewhere.”

“I would point out that this change, like many other changes in controversy, is not set in stone,” Jackson said. “Since the House did not eliminate funding for the Biotechnology Center, we will be giving the issue a second look in conference.”

The budget is moving into conference committee negotiations following the House’s vote this week to reject the Senate budget.

©2015 The News & Observer (Raleigh, N.C.) Distributed by Tribune Content Agency, LLC.

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