Reconciliation Bill - A Mixed Bag for Tech Transfer

Mike Waring
Advocacy and Alliances Coordinator
AUTM



  
President Trump’s budget reconciliation bill – what he called his “One Big Beautiful Bill” – is now law. On July 4, the President signed it after negotiations between the House and Senate.  It is the signature legislative victory for the President in this, his second term, and was the major focus of Congress for the first six months of the year.
 
Budget reconciliation is a special process in Congress that allows for moving large chunks of federal spending around to accommodate revised uses. In this case, the legislation was pushed to accomplish two of the President’s goals – provide additional revenue for immigration and border control and to extend tax cuts enacted five years ago which were set to expire.
 
To accomplish reconciliation, Congress must create new revenues that can be spent on priorities. In this case, it created revenue from new taxes, reduced spending, and other procedures that could then be repurposed for these two goals. 
 
Among the new revenue sources is one that will affect about 20 private universities which have among the highest endowments per-student. A new tax will now be levied on royalty income, which will include monies collected from technology transfer, among other sources.  This was an unfortunate outcome since it could hurt their ability to recycle that income for more research on campus. Moreover, the whole notion of taxing universities in this way hurts their ability to fund education, research, and scholarship. It also sets a dangerous precedent that could be extended to all universities.
 
One other tax affecting tech transfer was proposed. Provisions were offered in the Senate version that would tax revenues from litigation funding. This is where money is raised to help fund lawsuits against alleged patent infringement. Under the proposal, any such revenue would face a 40% tax as a disincentive to provide such funds. Thankfully, the Senate Parliamentarian determined that those provisions were not permissible to be added to the reconciliation legislation. The idea remains alive but would need to be acted upon as a separate piece of legislation. 
 
One provision that is in the legislation had AUTM’s support. Several years ago, the IRS began to require amortization of R&D expenses over five years. This interpretation made no sense, and a coalition of groups opposing it (including AUTM) pushed for including the repeal in reconciliation. The provision in the new law will allow for those expenses to be fully deducted in the year in which they are incurred.
 
Many pieces of legislation have both plusses and minuses. The budget reconciliation bill passed in July is just another example. The fact that these bills only need 51 votes in the Senate (as opposed to the normal 60 votes to avoid filibustering) make them ready vehicles for all kinds of tax and spending ideas. But be prepared – Senate leaders say they may push for another budget reconciliation bill again this fall. AUTM and the other higher education groups will continue to monitor and advocate for pro-innovation policies in case other provisions affecting universities are included next time around.