Congress Approves R&D Tax Credit; Will You Take Advantage?

Banks weren’t the only institutions to get help from the federal government two weeks ago. The U.S. House of Representatives also voted to extend the research and development tax credit to businesses as part of its approval of the giant bailout of the mortgage industry.

On Oct. 3, the House voted 263-171 to pass an amended Emergency Economic Stabilization Act after rejecting the bill earlier. President George Bush signed the $700 billion bailout plan later that day.

The bill included a two-year extension of the R&D tax credit, which expired at the end of 2007. Several tech companies, including Microsoft and Texas Instruments, had called on Congress to extend the tax credit, saying it helps U.S. businesses invest in R&D and keeps R&D workers in the country.

The U.S. Senate had passed the R&D extension in late September as part of a different bill, but the tax credit was added to the bailout bill just before it passed.

The tax credit covers up to 20 percent of qualified R&D spending. The tax credit has expired 13 times since 1981, despite calls by industry groups to make it permanent. Lawmakers have resisted making the tax break permanent largely because of its price tag of about $7 billion a year. Some critics have called the tax credit a government subsidy for large businesses.

For more on the House vote, click here. For more on the R&D tax credit, click here.

Tax credit or not, the nation’s top manufacturers devoted considerable resources to R&D in 2007, according to our annual study of the Assembly Top 50. Excluding three companies for which R&D spending data was unavailable-No. 25 Flextronics, No. 27 Magna International and No. 36 Whirlpool-the Assembly Top 50 spent more than $118.2 billion on R&D in 2007, an increase of 11 percent compared with 2006. Half of the Assembly Top 50 spent at least $1 billion on R&D, and only 10 companies spent less on R&D in 2007 than they did in 2006.

Not surprisingly, the company that spent the most on R&D in 2007 is also the company that rang up the most sales for the year: Toyota. The Japanese automaker spent more than $8.4 billion on R&D last year, a 10 percent increase from what it spent in 2006. Close behind is GM. Despite the company’s financial difficulties, GM spent $8.1 billion on R&D in 2007, a 22 percent increase compared with 2006.

Six companies devoted at least 10 percent of their 2007 gross revenue to R&D. Four of those-No. 14 Johnson & Johnson, No. 20 Cisco Systems, No. 49 Sun Microsystems and No. 50 Texas Instruments-have allocated at least 11 percent of their annual sales to R&D for four straight years. That investment has paid off handsomely for J&J and Cisco. Both companies have posted income-to-sales ratios of 10 percent or more for six straight years.

To read more about the Assembly Top 50, see the October issue of ASSEMBLY or click here.

The following table lists the top 25 manufacturers as ranked by R&D spending. The spending figures are in millions of dollars. How does your company compare?

The Top 25, by R&D Spending

Company	Top 50 Rank	R&D Spending	% Δ from ’06	R&D as % of Sales
Toyota	1	8,410	10.5%	3.2%
GM	2	8,100	22.7%	4.5%
J&J	14	7,680	7.8%	12.6%
Ford	4	7,500	4.2%	4.3%
IBM	10	6,153	0.8%	6.2%
Honda	6	5,938	26.6%	4.9%
Bosch	11	5,232	18.4%	7.7%
Siemens	7	4,964	21.7%	4.4%
Daimler	5	4,612	15.8%	3.2%
Cisco Systems	20	4,499	10.6%	12.9%
Motorola	19	4,429	7.9%	12.1%
Alcatel-Lucent	28	4,314	46%	16.6%
GE	3	4,100	17.1%	2.4%
Nissan	8	3,891	-1.6%	3.6%
Boeing	12	3,850	18.2%	5.8%
HP	9	3,611	0.6%	3.5%
BAE Systems	24	2,897	18.5%	9.3%
Abbott Labs	29	2,505	11.1%	9.7%
Philips	18	2,379	-1.7%	6.1%
Texas Instruments	50	2,155	-1.8%	15.6%
Sun Microsystems	49	2,008	-1.9%	14.5%
Delphi	34	2,000	0%	9%
United Technologies	15	1,678	9.7%	3.1%
Honeywell	22	1,459	3.4%	4.2%
Caterpillar	16	1,404	4.2%	3.1%