Entrepreneurs urged lawmakers to extend the research and development tax credit at a House subcommittee hearing Thursday.

Rep. Glenn Nye

The House Small Business Committee’s Subcommittee on Contracting and Technology held the hearing to examine the impact of the R&D tax credit, which is due to expire at the end of the year. The R&D tax credit was enacted in 1981 and has since been extended 13 times and significantly modified five times. President Obama called for making the credit permanent in his first budget.

Subcommittee Chairman Glenn Nye, D-Va., noted that the credit helps small businesses develop new technologies and create new jobs, and fosters long-term economic growth and prosperity. “Entrepreneurs are natural innovators, and the R&D credit encourages the work that leads to technological breakthroughs,” he said.

During the hearing, small-business owners discussed various ways that the credit could be improved. For example, witnesses suggested that the credit could be simplified to reduce paperwork compliance costs for businesses seeking to claim a refund. The hearing also explored whether the credit could be altered to provide assistance to firms in their earliest years of development.

Small-business owners at the hearing also described problems they face in preparing their R&D budgets because the credit has never been made permanent and they face constant uncertainty about whether the credit will be extended. In addition, many young, research-intensive companies are not yet profitable, and because a business must have tax liability to take the credit, these firms are currently ineligible for a refund under the program.