Massachusetts Governor Deval Patrick recently signed the Massachusetts Life Sciences Initiative, legislation that will provide $1 billion over the next ten years to support the development of the life sciences industry in Massachusetts. In addition to providing greatly increased funding for state capital expenditures, the June 16 legislation also provides for grant programs as well as new tax credits and incentives for businesses. In fact half of the state's billion dollar fund will be spent in the form of direct or indirect financial assistance to corporate ventures.
$250 million will be awarded over 10 years in tax incentives, evenly allocated at a rate of $25M per year, to "certified life science companies" that undertake projects that meet the goals of the initiative. Another $250 million will be awarded, again over ten years, as scientific research grants and small business assistance.
What Is A Certified Life Science Company?
Implementing regulations have not yet been written by the newly created Massachusetts Life Sciences Center but the act itself broadly defines "Life Sciences" to include: "agricultural biotechnology, biogenerics, bioinformatics, biomedical engineering, biopharmaceuticals, biotechnology, chemical synthesis, chemistry technology, diagnostics, genomics, image analysis, marine biology, marine technology, medical devices, nanotechnology, natural product pharmaceuticals, proteomics, regenerative medicine, RNA interference, stem cell research and veterinary science."
The Application Process
It appears likely that applicants will have to detail at least one life science project the company plans to carry out in Massachusetts and estimate (1) the projected new state revenue the company expects to generate through the proposed project; (2) the number of permanent full-time employees to be hired or retained; (3) the projected taxable income generated by the employees – as well as explain how the proposed project will advance life sciences. Eligible companies will be granted certification for renewable five year periods subject to annual reporting requirements.
What Type Of Tax Incentives Will Be Available?
Again, implementing regulations have not yet been promulgated but the legislation itself details several of the contemplated tax incentives, including:
- Investment Tax Credits for 10 percent of the cost of qualifying property (which includes buildings and structural components as well as tangible personal property) used exclusively in the project in Massachusetts.
- User Fee Tax Credits equal to 100 percent of any user fees paid to the FDA by the company for submission of human drug applications – provided the research and development costs of the drug were incurred primarily in Massachusetts.
These credits may be carried forward for a period of ten years by individual corporations or shared between certain affiliates during the same year. Alternatively, certified companies may be entitled to a refund of 90 percent of the balance of unused credits in the year that they arise.
Additional tax breaks for certified life science companies may include authorizations to carry forward net operating losses to offset future income (for a period of up to 15 years, rather than the five years currently permitted), sales tax exemptions for equipment purchased to carry out approved projects, and tax credits or deductions of at least a portion of certain clinical testing expenses.
The Massachusetts Life Sciences Initiative will create many opportunities for life science companies operating in Massachusetts. Since it appears that there will be a cap on tax incentives in any given year (an aggregate total of $25 million per year), eligible companies may wish to apply for certification sooner rather than later.
This advisory was prepared by Thomas Engellenner, co-chair of Nutter's Life Sciences practice, Deborah Miller and Michael Doyle, members of the Life Sciences practice, and David Sullivan, a member of the Tax practice.
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.