MA Life Sciences Legislation

Target Audience: Life Sciences Industry, Massachusetts Healthcare Accountant, Certified Life Science Companies, Limited Partnerships

On June 16, 2008 Governor Deval Patrick signed the Act Providing for the Investment in and Expansion of the Life Sciences Industry in the Commonwealth.

This new law is intended to position MA as a global leader in Life Sciences by making a ten year, $1 billion investment through cash grants, investments, tax credits and other expanded tax benefits. The implementation of these incentives will be controlled by an eighteen member advisory board (Board) who will administer the program and certify companies to qualify as a “Certified Life Sciences Company” (CLSC). Total annual tax incentives cannot exceed $25 million, effective January 1, 2009. Key highlights of the program include:

Certification

Companies will apply for certification to the Board to qualify for the CLSC program. Certification will be effective for five years (unless terminated earlier for noncompliance) and will be targeted for $25 million each year in investments to stimulated increased research and development and $25 million each year in tax incentives to be awarded to CLSC projects.

It is unclear how the Board will make allocations between qualified applicants but the definition of Life Sciences is very broad. CLSC will have to file annual reports with the Board and have their financial statements audited if grants have been made.

Credits

Incentives in the form of new or expanded credits to be applied to the CLSC tax liability or refundable:

FDA user fee – A credit against tax liability equal to 100 percent of the cost of user fees paid to the FDA allowed in the year in which its application for the licensure of an establishment to manufacture the human drug is approved.

Investment in qualifying property – A credit against tax liability equal to ten percent of the cost of qualifying property acquired or constructed during the taxable year and used exclusively in MA. Qualifying includes tangible personal property and other tangible property including buildings and structural components acquired by purchase with a useful life of four years or more.

Life sciences research credit – Credit against tax liability equal to the sum of ten percent of the excess, if any, of qualified research expenses for the taxable year over the base amount, and fifteen percent of the basic research payments pursuant to IRC Section 41(e)(1)(A).

Grants and Investments

The fund will provide matching grants to CLSC’s that have commercialization ready technologies developed with assistance from the SBA in the form of $1 in matching funds for every $1 granted from the SBA up to a maximum of $500,000. The grants can be outright or take the form of loans, guarantees, insurance, equity investments or other financing. The Board will take into account factors such as the likelihood of success, potential new employment, level of the principal’s investment in funds and time and investor participation. 

Net Operating Loss (NOL)

Expansion of the NOL carryover from five years to fifteen years in order to allow more time for taxpayers to generate sufficient taxable income to utilize the NOL. This benefit’s CLSC’s who may take longer to reach commercial product feasibility or who continue to invest heavily in new products for many years.

Sales Tax Exemption

Sales of tangible personal property purchased for a CLSC to use in connection with the construction, alteration, remodeling repair or remediation of a research, development or manufacturing facilities of utility support systems shall be exempt from sale/use tax.

Sales Throwback Relief

A CLSC may be deemed to be taxable in the state of the purchaser if the property of the project is delivered or shipped to a purchaser in another state. This provision provides relief for the throwback of sales to MA for the apportionment of income calculation when the taxpayer is not taxable in the state of product delivery.

Orphan Drug Expenses

A deduction will be allowed for that portion of qualified clinical testing expenses equal to the amount of credit allowable under IRC Section 45C. This provision allows the deduction for the amount of credit which can not be deducted on the federal return.

Please Note: Effective July 1, 2008, the state of Massachusetts now requires limited partnerships to file an annual report at a fee of $500 to conform to the limited partnership filing requirements within the parameters of an LLC.

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