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SUBCOMMITTEE ON 

CONTRACTING AND TECHNOLOGY 

HEARING ON HELPING SMALL BUSINESS 

INNOVATORS THROUGH THE RESEARCH 

AND EXPERIMENTATION TAX CREDIT 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

July 9, 2009 

Small Business Committee Document Number 111-035 

Available via the GPO Website: http://www.access.gpo.gov/congress/house 


Congress.#13
HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

DENNIS MOORE, Kansas 

HEATH SHULER, North Carolina 

KATHY DAHLKEMPER, Pennsylvania 

KURT SCHRADER, Oregon 

ANN KIRKPATRICK, Arizona 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

DAN LIPINSKI, Illinois 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

PARKER GRIFFITH, Alabama 

DEBORAH HALVORSON, Illinois 

SAM GRAVES, Missouri, Ranking Member 

ROSCOE G. BARTLETT, Maryland 

W. TODD AKIN, Missouri 

STEVE KING, Iowa 

LYNN A. WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

BLAINE LUETKEMEYER, Missouri 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KAREN HAAS, Minority Staff Director 

(II) 

STANDING SUBCOMMITTEE 

Subcommittee on Contracting and Technology 

GLENN NYE, Virginia, Chairman 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

KURT SCHRADER, Oregon 

DEBORAH HALVORSON, Illinois 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

PARKER GRIFFITH, Alabama 

AARON SCHOCK, Illinois, Ranking 

ROSCOE BARTLETT, Maryland 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma 

GLENN THOMPSON, Pennsylvania 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Nye, Hon. Glenn ...................................................................................................... 1 

Schock, Hon. Aaron ................................................................................................. 3 

WITNESSES 

Heenan, Mr. Bart, Chief Executive Officer, Morphix Technologies, Virginia 

Beach, VA ............................................................................................................. 4 

Ferros, Mr. Scott, Chief Financial Officer, Blackhawk!, Norfolk, VA ................. 6 

Wilson, Mr. Doug, Executive Vice President, LifeNet Health, Virginia Beach, 

VA .......................................................................................................................... 8 

Schoenbach, Dr. Karl, Frank Reidy Research Center for Bioelectrics, Old 

Dominion University, Norfolk, VA ...................................................................... 9 

Barrett, Mr. Ned, President, Direct Logic Solutions, Peoria, IL ......................... 11 

Bendis, Mr. Richard, President & Chief Executive Officer, Innovation America, Philadelphia, PA ............................................................................................ 13 

APPENDIX 

Prepared Statements: 

Nye, Hon. Glenn ...................................................................................................... 20 

Schock, Hon. Aaron ................................................................................................. 22 

Heenan, Mr. Bart, Chief Executive Officer, Morphix Technologies, Virginia 

Beach, VA ............................................................................................................. 24 

Ferros, Mr. Scott, Chief Financial Officer, Blackhawk!, Norfolk, VA ................. 29 

Wilson, Mr. Doug, Executive Vice President, LifeNet Health, Virginia Beach, 

VA .......................................................................................................................... 36

Schoenbach, Dr. Karl, Frank Reidy Research Center for Bioelectrics, Old 

Dominion University, Norfolk, VA ...................................................................... 39 

Barrett, Mr. Ned, President, Direct Logic Solutions, Peoria, IL ......................... 41 

Bendis, Mr. Richard, President & Chief Executive Officer, Innovation America, Philadelphia, PA ............................................................................................ 44 

(V) 

(1) 

SUBCOMMITTEE ON 

CONTRACTING AND TECHNOLOGY HEARING 

ON HELPING SMALL BUSINESS 

INNOVATORS THROUGH THE RESEARCH 

AND EXPERIMENTATION TAX CREDIT 

Thursday, July 9, 2009 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Subcommittee met, pursuant to call, at 10:10 a.m., in Room 

2360, Rayburn House Office Building, Hon. Glenn Nye [chairman 

of the Subcommittee] presiding. 

Present: Representatives Nye and Schock. 

Chairman NYE. Good morning. Let me just go ahead and open 

this hearing. I am going to start with an apology. We are going to 

have votes relatively soon and so we are going to be interrupted. 

We are going to get as far as we can through the opening statements and then we will have to go vote, and then I will get us back 

and start us right as soon as we get through the first cycle of votes. 

Again, so apologies ahead of time. I am going to ask for a little bit 

of patience today, but we will get everybody a chance to say what 

they need to say. 

I want to go ahead by just starting with an opening statement. 

And again, welcome to all our panelists today. 

Yesterday afternoon, the House voted on legislation to strengthen the SBA’s small business innovation programs. And in debating 

that bill, the same two themes kept coming up over and over again, 

job creation and economic growth. Those are areas in which our 

country has traditionally excelled, thanks largely to an emphasis 

on research and development. And today, even as our economy 

moves towards recovery, we need to be focused on the kind of innovation that can unlock new markets and create new jobs. The Research and Experimentation Tax Credit, commonly known as the 

R&D tax credit is a tested means for doing just that. 

Targeted tax relief is an important tool for encouraging small 

business growth and also an effective catalyst for innovation. In the 

past, the R&D tax credit has encouraged countless entrepreneurs 

to test the waters of innovation. And today we are going to look at 

that incentive and evaluate its role in strengthening small firms. 

Any investment in small business R&D goes a long way. That is 

because entrepreneurs are already more inventive than their larger 

competitors. Small firms produce 13 times as many patents as big 

businesses, and have a history of pioneering new markets. We can 

2 

remember the tech boom in the 1990s wasn’t a corporate success 

story as much as a small business revolution, one that saw the rise 

of lucrative new industries, such as on-line advertising. But we 

must also remember that innovation isn’t just about developing the 

latest technology, it is about creating jobs. 

70 percent of R&D credit dollars go to high wage positions for researchers, scientists and engineers. Because small firms employ 

nearly 40 percent of these professionals, it is safe to say that R&D 

job growth is small business job growth. And with unemployment 

now hovering at 9-1/2 percent, we need every job we can get. Incentives for innovation are an important means for keeping current 

workers on payroll and putting unemployed Americans back to 

work. They also make good economic sense. According to one study, 

every dollar in R&D tax credits yields another $2 in research. 

Clearly, this credit is doing a great deal of good for our economy. 

And yet, despite its obvious benefits, there is concern that it is not 

accomplishing as much as it could for entrepreneurs. That is a real 

issues because roughly 40 percent of the businesses that claim this 

credit are small firms. 

Perhaps the greatest shortcoming in the R&D credit is its lack 

of permanence. In the nearly three decades since its inception, the 

incentive has never been cemented. Instead, it has been reauthorized 1 year at a time, often at the last minute, retroactively, and 

after the credit has expired. Now, if that sounds convoluted, it is 

because it is. And needless to say, these actions have added an element of uncertainty to an already risky R&D process. Making the 

tax credit permanent could mitigate that risk, giving entrepreneurs 

the stability they need to plan budgets and attract investment. 

Meanwhile, a move to unravel some of the credits complexity could 

also be a big help. By simplifying the process, we could cut down 

on paperwork and ease compliance costs. Doing so would likely encourage more small firms to participate in R&D, helping them to 

develop more new products and create more new jobs. 

Kitco Fiber Optics, a business based in my district, who unfortunately could not make it here today, is just one example of a small 

business which qualifies for the R&D tax credit, yet does not receive the credit. The president and CEO of KITCO, Geoff Clark, 

has told me that due to the uncertain nature of the current legislation, his business has not made the initial investment to hire accountant who specializes in R&D tax credit dealings to go through 

their accounting books in order to determine what would qualify for 

this credit. And my hope is that taking action to both simplify and 

make permanent the R&D tax credit would encourage KITCO and 

other small businesses to use the incentive to increase their growth 

and productivity. 

The strength of our economy has always been driven by the innovation and hard work of our small entrepreneurs, and as we work 

to create jobs and get our economy moving again, we must once 

again look to small business to lead the way. 

By strengthening the R&D tax credit, and cutting taxes for small 

businesses, we can give our most inventive firms the tools they 

need to innovate and grow. And most importantly, as we face increased competition from abroad, continued investment in R&D 

3 

will help us retain our standing as home to the world’s greatest 

technological advances. 

I would now like to thank today’s witnesses in advance for their 

testimony. I know that we are all looking forward to hearing from 

them. 

And with that, I would like to go ahead and recognize our committee ranking member, Mr. Schock, for any opening statement 

that he might have. And again, apologies for the fact that we will 

have to break to go vote relatively soon. But we will see how much 

we can get done before that. Mr. Schock. 

[The statement of Mr. Nye is included in the appendix.] 

Mr. SCHOCK. Well, thank you Mr. Chairman. I apologize for my 

tardiness. We have had, as you know, a very busy morning already 

and we will have a busy morning. 

So thank you to the witnesses who are here this morning and for 

Mr. Chairman, for holding this meeting to further study the impact 

of the research experiment or the, what we call the R&D tax credit, 

and what effect it is having on our Nation’s small businesses. 

I would also like to thank each one of our witnesses for having 

taken the time to provide this committee with their testimony and 

travel all the way to Washington here today. 

The R&D tax credit has been available for businesses large and 

small for over 20 years. And during that period, tens of thousands 

of companies have used this important provision of the Tax Code 

to help reinvest and grow their businesses, encouraging more 

American ingenuity and domestic jobs. 

Now, more than ever, we must be focused on providing appropriate incentives to those companies, which will help grow our 

economy and make a sustained commitment to conducting long 

term, high cost research right here in the United States. 

The R&D tax credit is positive motivation for U.S. investment, 

innovation and something which will help to contribute to a stronger economy and a higher standard of living for American workers. 

Simply put, the R&D tax credit stimulates immediate business investment decisions with long term benefits to the U.S. economy. 

Since the R&D credit is only available for research performed in 

the United States, it remains a job creator that cannot be exported. 

As such, the credit is certainly needed, especially as foreign governments continue to actively recruit American companies to base research operations at a low cost option abroad. 

Regrettably, Congress has repeatedly failed to provide long term 

insight to extend this credit beyond just a few short years. The fact 

that the R&D credit has proven itself popular enough to be extended 13 times is all the evidence this Congress needs to know 

that we should stop playing games and make the credit permanent. 

Again, the R&D tax credit is scheduled to expire at the end of 

this year, and, again, small businesses are being pushed into a scenario where saving proves wiser than investing for growth due to 

the lack of certainty of the continued extension of this credit. With 

such confusion, businesses are unable to factor the full benefits of 

the R&D credit into their research budgets, long term commitments and their capital needs. 

The bottom line is that either a longer extension or permanency 

of the R&D tax credit would create and help high paying U.S. jobs 

4 

and allow for better planning by our Nation’s business. I am optimistic that today we will hear from those small businesses that are 

directly affected by this tax credit. I look forward to hearing all of 

you regarding the necessity of R&D tax credit, as well as specific 

changes so that we can continue to incentivize the risk-taking entrepreneurship and investment necessary to grow our economy and 

create good paying American jobs. 

I yield back, Mr. Chairman. 

Chairman NYE. Thank you, Mr. Schock. I am going to go ahead 

and introduce the panel members one by one. We are going to ask 

you to try to get your remarks into the 5-minute window, if you 

can. And you will notice in front of you a set of lights which will 

be green for 4 minutes, yellow for the final minute, and then will 

turn red when 5 minutes is up. If we get to the end, we would ask 

you to try to go ahead and conclude as quickly as you can. 

I want to start by introducing Mr. Heenan, CEO of Morphix 

Technologies, based in Virginia Beach, Virginia. As the CEO, Mr. 

Heenan leads the strategic direction and day-to-day operations of 

the company. 

Morphix Technologies provides innovative gas detection products 

to military, first response, and industrial users throughout the 

world. And again, thank you for being with us today. Mr. Heenan, 

you are recognized. 

STATEMENT OF BART HEENAN 

Mr. HEENAN. Thank you, Chairman Nye and Ranking Member 

Schock. 

Good morning. It is my pleasure to be here. And I appreciate 

your leadership on this important issue to small technology businesses. 

Morphix Technologies was formed in 1995. We make chemical 

detection products that have the potential to save lives for military, 

for first responders and for industrial workers. Our niche is providing low cost, rugged, easy to use chemical detection devices that 

your average cop, your average 18-year old who goes and volunteers to serve in our military can use with minimal training. We 

now employ 35 people, 15 of whom are scientists and engineers, 

five of them have Ph.Ds. 

As a business person, I am really not in a position to recommend 

policy. However, I would like to share with you some of my 

thoughts of the practical implications and practical issues I see 

with the R&D tax credit. Clearly, as you have already stated, the 

R&D tax credit has a big impact on America’s competitiveness, can 

have a big impact on job creation. 

At Morphix, 85 percent of our R&D is labor cost. And those are 

good paying jobs. A well functioning R&D tax credit, I think, can 

help small businesses maybe increase their science staff by five to 

10 percent. However, the companies need to believe in the R&D tax 

credit. 

Frankly, at Morphix, we don’t have that confidence in the R&D 

tax credit on a regular basis, so we haven’t gone out and hired that 

additional scientist or additional engineer that we might otherwise 

hire from the R&D tax credit, and there are three main reasons for 

that that I would like to share with you. 

5 

The first both of you have already addressed and that is the permanence issue. That impacts all companies participating in the 

R&D tax credit, so I am not going to discuss that any further. You 

have already discussed that very well. 

The second and third issue are both, I think, very specific to 

small companies. And the first of those is that there is a significant 

administrative burden for small companies to be able to take advantage of the R&D tax credit. That administrative burden is not 

just going out and hiring a tax accountant, but it is having the accounting systems in place that allow you to do what you need do 

to comply to the IRS regulations. Most large companies have those 

accounting systems in place. 

In my experience, most small companies do not. So it is not just 

an investment once a year in a tax accountant. It is actually a big 

investment of changing the infrastructure of the company, and that 

is a very, very difficult issue for many small companies. 

The next and last issue I would like to highlight is probably the 

one that is most important to me personally, and that is the impact 

of the alternative minimum tax or AMT relative to the R&D tax 

credit. This issue is really, I think, pretty simple, and that is that 

many small businesses, including mine, are taxed through the individuals’ income tax, not through a corporate income tax. Large 

companies are often taxed through corporate income tax, small 

companies more through individual tax. 

If the individual owners, the business owners, who are being 

taxed through their individual tax return are subject to the AMT, 

they are not allowed to take the R&D tax credit. As a result, I 

think many business owners feel that it is not worth the effort to 

go after the R&D tax credit because they are not really going to 

get the result. 

Let me give you an example, my personal example. At Morphix, 

we have spent well over a million dollars in R&D over the last 3 

to 4 years. My share of the taxes we have paid for income and employment taxes has been in the hundreds of thousands of dollars, 

and I have personally been able to take $138 in R&D tax credit 

over that time period. That is really not much of an incentive to 

go and do something that is going to employ the people and do the 

things that the R&D tax credit is intended to do. 

In summary, I fully support the R&D tax credit. I think it is a 

powerful engine for employment growth, a powerful engine for competitiveness of the country. For the reasons I outlined above, I believe that small technology businesses are generally not fully utilizing the tax benefit to their full advantage. And of course, if companies aren’t taking the R&D tax credit, then it is not achieving 

its economic and social benefits that it is intended to take. 

I would ask the committee to consider three things: One, make 

it permanent, two, simplify the administrative burden for small 

businesses, and three, try to address the AMT issue relative to the 

R&D tax credit. 

Thank you for your time. 

Chairman NYE. Thank you, Mr. Heenan. 

[The statement of Mr. Heenan is included in the appendix.] 

6 

Chairman NYE. I would now like to introduce Mr. Ferros. Mr. 

Scott Ferros, Chief Financial Officer for Blackhawk, located in Norfolk, Virginia. 

Blackhawk was founded in 1995 by a former U.S. Navy SEAL, 

Mike Knoll. The company is recognized as a world leader in supplying tactical equipment to the military and law enforcement markets. 

Mr. Ferros. 

STATEMENT OF SCOTT FERROS 

Mr. FERROS. Chairman Nye, Ranking Member Schock, and the 

distinguished members of the Contracting and Technology Subcommittee of the House Small Business Committee, happy to be 

here today. 

Again, my name is Scott Ferros. I am the Vice President and 

Chief Financial Officer for Blackhawk in Norfolk, Virginia, based 

veteran owned small business. Thank you again for allowing me 

the opportunity to share my views on the merits of the research 

and experimentation tax credit. 

As a certified public accountant with over 30 years of varied public accounting and industry experience and the chief financial officer of a highly innovative small business, I feel somewhat uniquely 

qualified to convey to you some of my observations on the R&D 

credit. 

As I am sure you already know, which I have experienced time 

and time again, tax policy does significantly influence taxpayer behavior. With respect to the R&D credit, I believe the economics of 

the credit stimulate product innovation related spending. However, 

the ongoing temporary nature of the legislation, along with administrative complexities of the program, do create an uncertainty for 

all users; and there is a punitive cost to compliance issue that will 

limit the use for very small businesses. 

As we meet here today, I would like you to consider a couple of 

simple recommendations. First, recognize the economic benefits 

most companies do derive from the program; second, make the 

R&D credit permanent law; and third, work to simplify the compliance process. 

Blackhawk is a 16-year old company with a history of developing 

new and innovative product solutions which we believe enhance the 

effectiveness and safety of our primary end users, the warfighter 

and the law enforcement officer. It is our collective opinion at 

Blackhawk that the economic benefits of the R&D credit allowed 

under the Internal Revenue code have helped enable our company 

to grow from a very small entrepreneurial run business to a product development driven organization that now employs over 300 

people throughout the United States and sells thousands of products to military and law enforcement professionals on a global 

basis. 

Blackhawk has utilized the R&E credit since 1999. During this 

10-year period, the company has successfully developed several 

hundred new products and increased payroll related research and 

experimentation expense from approximately $200,000 in 1999 to 

over $5 million in 2008. During that time, while credits increased 

7 

from roughly 15 to over $300,000 last year, the gross revenue, subject to Federal and State tax, grew ten-fold. Much of this increase 

that we have experienced has been driven by new products introduced as a result of the R&D process, which leads us to believe 

that the payback to the government far surpasses the cost of the 

program. 

While the benefits of the program appear clear, the temporary 

nature of the credit has caused uncertainty, and the compliance 

complexities have created barriers of entry in a cottage industry 

supporting the compliance. 

The R&E credit was originally enacted as part of the 1981 Economic Recovery Tax Act, and has been revised and amended in the 

years since through many updated tax acts, but remains still temporary. The continuance of the credit is a frequent topic of discussion and speculation between businesses, tax advisers, Members of 

Congress, and the Department of Treasury, creating an air of uncertainty for all parties involved. 

We believe that making the credit permanent would encourage 

more companies to use this credit and, therefore, stimulate research. 

Finally, the tax credit and the expenses are addressed in Internal Revenue Code sections 41 and 174, as well as the corresponding regulations. The source of the law is well over 100 

pages in length, which does not include the thousands of court 

cases and other rulings pertaining to the same topic. An editorial 

discussion by the Bureau of National Affairs is nearly 300 pages 

in length, as evidenced by the massive volume of law compliance 

and access to the credit is extremely difficult. The complexity has 

given rise to a cottage industry of tax advisers who specialize exclusively in quantifying and reporting the credit. 

In our case, we justify the compliance and consulting costs to report the credit. However, quite, frankly the professional services 

associated with this credit are expensive and, I believe, prevent 

smaller entrepreneurs from benefiting. 

At Blackhawk, we have a well organized and disciplined R&D division with remarkable employees and distinct financial reporting. 

Even with this unique organization, we are required to produce 

contemporaneous documentation to support our activities for the 

sole purpose of qualifying for the credit. And while we have sufficient size to benefit from the credit, it is not always the case, and 

it was very difficult when we were a small company. 

We believe there are many barriers that prevent smaller and 

younger companies from claiming this credit, not the least of which 

are the complexities, the compliance costs, the Alternative Minimum Tax and the net operating loss limitations. 

So, Mr. Chairman, and members of the committee, we strongly 

recommend that easing these barriers will permit more and smaller companies to claim the credit and drive the innovation within 

the United States. 

This concludes my prepared statement. And again, thank you for 

the opportunity to testify to the committee today. And I look forward to answering any of your questions. 

Chairman NYE. Thank you Mr. Ferros. 

[The statement of Mr. Ferros is included in the appendix.] 

8 

Chairman NYE. Mr. Schock, if you don’t have any opposition, I 

am going to go ahead and invite Mr. Wilson. I think we have time 

to get one more person’s opening statement before we will have to 

go take some votes. 

So Mr. Wilson, thank you for joining us today. 

Mr. Doug Wilson is the Executive Vice President of LifeNet 

Health in Virginia Beach, Virginia. LifeNet Health is a no profit 

organ procurement organization providing donation systems for 

heart, liver, kidney and other organs for transplant. 

And Mr. Wilson, thank you for joining us today. Please. 

STATEMENT OF DOUG WILSON 

Mr. WILSON. Good morning, Congressman Nye, and Congressman Schock. Thank you for having us. 

Research has played a significant role in LifeNet Health’s past, 

and it will play a significant role in our future. 

Today LifeNet Health is the largest nonprofit full service tissue 

provider in the United States. And since our formation in 1982, 

LifeNet Health has pioneered technologies through a strong and 

unwavering commitment to research designed to ensure safety in 

allograft screening, recovery, cleaning and delivery. Allograft tissue 

is tissue donated from the gift of tissue donation at the time of 

one’s death. LifeNet Health processes this tissue into implants for 

surgeons to use in their patients who are suffering from a disease 

or a specific injury. 

Our innovative processes have been benchmarks in the industry. 

Allograft tissues are actually transplanted in nearly every hospital, 

every day, specifically, in orthopedics, trauma care, neurosurgery, 

cardiac surgery and vascular surgery. 

Key to today’s hearing is the following: LifeNet Health works 

closely with many for profit companies, both in research as well as 

in the distribution phases of our product life cycles. In some cases 

we rely on them, and we will continue to rely on them for their 

capital investments through contractual programs and joint ventures for research into new bioimplant technologies leading to new 

and improved clinical products. In many cases, these companies 

provide LifeNet Health, a nonprofit, with the necessary capital to 

enhance our research and our production efforts, carry the products 

through the regulatory process, and the product development cycle. 

The research tax credit in its many forms can be a factor in the 

investment decision by our for profit partners. Most of our new 

products, particularly those emanating from regenerative medicine, 

are very long time horizon projects and they have high fixed costs. 

Thus, permanence of the tax credits could reduce the risk for the 

investment and distribution partner that we may solicit. 

Equally important, permanence provides an environment in 

which our for profit partners can plan and forecast with more confidence long term. The use of the tax credits allows LifeNet, 

through our partners, to have flexibility in the selection of projects 

and products to fund, especially those who have high social value 

and long term impact on our society. 

Future R&D will ensure better patient care and, more importantly, optimized economic options for hospitals which they need. 

LifeNet Health’s commitment to safety and quality and patient outVerDate Aug 31 2005 14:54 Oct 21, 2009 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\50947.TXT DARIEN
9 

come is evident in everything we do, including ongoing research 

and development efforts. We have more than 45 patents that include cleaning technology which is the industry standard in tissue 

banking. 

As a result of our R&D work, LifeNet Health has distributed 

nearly 2 million allografts with no incidence of disease transmission linked to tissue screened and processed by LifeNet. 

As part of our ongoing commitment to bio-implants, LifeNet 

Health recently announced the LifeNet Health Regenerative Medicine Institute. The focus of the new institute will be to utilize our 

current technologies, coupled with the latest in stem cell and 

growth factor development, to yield new generations of more clinically effective implants. For these lofty projects going forward, 

LifeNet Health will surely establish alliances with for profit organizations for co-development. The use of the permanent tax credit for 

research and development purposes by our potential alliance partners will, no doubt, allow us to move ahead in developing better 

therapies for patients in need and furthering our mission of saving 

lives. 

Thank you very much. 

Chairman NYE. Thank you, Mr. Wilson. 

[The statement of Mr. Wilson is included in the appendix.] 

Chairman NYE. I just want to check the clock here. All right. 

What I am going to do is I am going to adjourn the session until 

we have time to go take this vote. And I understand we have a series of votes to take that is going to eat up a little bit of time. I 

am not sure exactly how long it is going to take. I am hoping it 

will be less than an hour, but it will be a significant bit of time. 

So we are going to adjourn until we finish this round of votes. We 

will come right back as soon as it is over, and we will have the 

staff kind of keep you up to date on where we are and how long 

we think it will take. And again, apologize. But this is one thing 

that we as Members of Congress have to do when they tell us and 

personally. So again, thank you for being here. And we will adjourn 

temporarily, and then we will reconvene as soon as possible. 

[recess.] 

Chairman NYE. I am going to go ahead and bring this hearing 

back to order. Thank you. And apologizes for holding you here for 

so long. But I am glad you stayed. I think it is important that everyone here who spent the time to get here have a chance to be 

heard today on this important topic. So what I would like to go 

ahead and do is introduce our next panelist for his opening statement. Dr. Karl Schoenbach, a professor and eminent scholar from 

the Frank Reidy Research Center for Bioelectrics in Old Dominion 

University located in Norfolk, Virginia. The Frank Reidy Research 

Center works to develop medical diagnostics, therapeutics and environmental decontamination. Dr. Schoenbach, thank you for joining us. 

STATEMENT OF KARL SCHOENBACH 

Mr. SCHOENBACH. Chairman Nye, thank you for inviting me. I 

am representing the Frank Reidy Research Center for Bioelectrics 

today. It is an interdisciplinary research center, and we have about 

10 

40 faculty, graduate students and technical staff. We focus on the 

study of biological effects of electrical pulses and try to develop new 

therapies based on these bioelectric effects. One of our major application is treatment of cancer. We are doing very well in basic research as shown by the funding which we get mainly from NIH and 

the Department of Defense, by a large number of publications, and 

by invited talks all over the world. We are less successful in transferring, however, our research to industry. Two examples. Already 

in 2002, we have shown that we can, with very short electrical 

pulses, kill cancer cells very effectively. And in 2006 in animal experiments, we could demonstrate that we can eliminate melanoma 

tumors completely with these short pulses. We have tried since 

then, since 2006 and actually before that, to find companies who 

work with us to bring this technology to market. And we were only 

successful now, this year, to find a company who is willing to work 

with us. 

Another example is based again on research developed for the 

treatment of melanoma. In this case, we have developed an efficient method using electrical pulses to deliver genes directly into 

the tumors which then stimulate the immune system and destroy 

tumor cells. We could show that this therapeutic approach is not 

only effective in treating tumors locally, but it also prevents new 

tumor growth and it eliminates metastatic tumors. 

So even with these exciting results we were not able to get support from companies immediately. It took us 2 years to get support 

from a small business which helped us to get the equipment in 

place and financial support from a cancer center to do a phase one 

trial. And again, this gave us fantastic results. But we are still 

searching for companies to help us support a phase two trial. 

Again, because of limited availability of research dollars we have 

not been successful yet. In both cases, we lost valuable time which 

could have been used to bring our therapies to cancer patients. The 

problem is that the university research is still focused on basic research. It will only demonstrate feasibility in preclinical studies or 

early phase clinical studies and will seldom go towards for full development of therapies. This is considered to be the task of companies. Small companies, on the other hand, would understandably 

like to minimize risk when taking on new projects and would like 

to only take on ′′mature projects,′′ projects which are only in a certain stage such that the risk is relatively small. 

So there is a gap between university research and research and 

development at small companies. Any incentive which helps to 

bridge this gap to lower this barrier is extremely important for university research, and tax incentives could be one of them. It would 

definitely help to get our research at the universities better to the 

market and faster to the market if this barrier would lower. Thank 

you. 

Chairman NYE. All right. Thank you very much, Dr. Schoenbach. 

[The statement of Mr. Schoenbach is included in the appendix.] 

Chairman NYE. I am going to—we are going to go on. I am going 

to actually invite our ranking member, Mr. Schock, to do the next 

introduction, as I believe our next panelist is someone who is from 

his area. So I will turn things over to Mr. Schock. 

11 

Mr. SCHOCK. Thank you, Mr. Chairman. Our next witness is Mr. 

Barrett, is that correct? 

Mr. BARRETT. That is. 

Mr. SCHOCK. All right. Mr. Ned Barrett is the President and 

chief operating officer of Direct Logic Solutions located in my home 

town of Peoria, Illinois. Direct Logic was founded in 1998 and has 

grown substantially since then helping their clients with direct to 

consumer marketing. Direct Logic has a number of customers located in central Illinois and also around the country. They focus on 

marketing consultation, search engine optimization, marketing 

database construction, as well as sales forecasting. Ned has been 

with Direct Logic from the start, but before that ran a variety of 

other different business. I appreciate you making the trip here 

today and look forward to hearing the testimony before our committee. Welcome. 

STATEMENT OF NED BARRETT 

Mr. BARRETT. Ranking Member Schock, thank you, Chairman 

Nye, I appreciate it. I appreciate the opportunity to testify to the 

committee today. I am here to tell you that we support the continuation of an expansion of the R&D tax credit. Direct Logic employs 

25 people and we specialize in interactive marketing which includes Web site development, as you mentioned, database construction, e-mail marketing, on-line promotions, social marketing to 

Facebook and Twitter and other advanced database marketing 

technologies. We are a small company, but we count many top 

firms as clients including Hasbro Toys, The Breeders Cup, Thoroughbred Horse Racing, TV Guide, Maui Jim Sunglasses, FTD Florists, BASF, the German chemical company and many others. I 

mention these clients because people are sometimes surprised that 

a firm from Peoria can compete with large agencies in New York, 

Los Angeles and Chicago to win such accounts. 

The reason we have the securities accounts is due to our superior 

products and services that are a result of our intensive research 

and development and our proprietary technologies. Our success is 

due in large part to our people. It used to be the top technology 

talent only migrated to large cities and technology hubs. Now that 

there is such a great ability for people to collaborate on line in realtime with colleagues and peers around the U.S. and around the 

world a person’s physical location is much less important. Our program has worked with people around the world who have access 

to the most recent technical developments at their fingerprints. 

What they are seeking is a quality of life and creative environment where they can make the most of their lives. The people that 

we attract to our firm are attracted to Peoria for the low cost of 

living and the higher quality of life that they can enjoy with their 

families. Our real challenge in recruiting these employees is to be 

able to offer them a position where they are free to exercise their 

intellectual talents to the fullest. Our strong commitment to research and development creates the kind of work environment 

these people are looking for. 

As a result, central Illinois employment base is strengthened by 

the jobs that we and other small businesses are creating. As a percentage of our business we have poured huge amounts of money 

12 

into R&D over the past several years. Since venture capital firms 

like ours is much scarcer than is generally understood and that we 

have limited access to credit markets we have used money from ongoing operations to fund most of our R&D. Many small firms do 

this and the R&D tax credit can be an incredibly important offset 

to this utilization of scarce capital. It is a very important point that 

the committee needs to consider. Small firms are the innovators of 

tomorrow and represent critical sources of new tax revenue for both 

the state and Federal governments. 

In order to stay competitive and grow, we pour every available 

tax dollar into R&D. The money freed up by the R&D tax credit 

gets plowed back into businesses in the form of additional salaries 

and investment in the future. Furthermore, the R&D investment 

we are doing is helping in the transformation of the work place. A 

significant percentage of our employees are the sons and daughters 

of large manufacturing companies. Although Peoria is blessed with 

a strong industrial base through Caterpillar equipment, we and 

other small tech firms like ours are contributing to the development of a knowledge economy in central Illinois. 

Although I am concerned about the impact the R&D tax credit 

has on businesses like Direct Logics, I am also very concerned 

about its impact on the international competitiveness of the U.S. 

Industry in general. The world is truly becoming flat when it comes 

to competitive advantage. As a technology executive, I am being 

contacted daily by foreign outsourcing firms who would like to subcontract work with us. We don’t do any subcontracting work with 

foreign firms. But what I am struck by when I speak with these 

executives is the level of work they are doing and the sophistication 

of the work that they are doing. 

During the past 150 years the competitive advantage that nations and their commercial enterprises have enjoyed represent significant barriers to entry for foreign competitors. In many cases it 

took years or decades for foreign competitor to enter commercial 

space and then supplant the domestic industry. Now, in many industries that time line has shrunk from years to months. Furthermore in the past, older industries that were captured by foreign 

competition were typically replaced by new domestic industries and 

services that provide a greater overall GNP growth in the industries that it replaced. 

Now, I still believe that the U.S. is an innovation leader in many 

technology categories. Our dominance time though in those categories is shrinking. I am not sure that there is any way to slow 

down this progression since it seems to be a part of the accelerating nature of global economics, but I do think the government 

needs to provide industry with the tools to help innovation occur 

in the first place. I believe that the U.S. can continue to innovate 

and create new businesses well into the future. I think this is a 

function of national creativity of our society. However, it is critical 

that government support this innovation any way it can. 

And the R&D tax credit is an important tool that supports this 

goal. Properly applied it not only encourages industry to invest in 

R&D, but it acts to ensure that those dollars are spent domestically. The R&D tax credit must be considered in its global context. 

It is my understanding that the U.S. credit has become much less 

13 

competitive relative to the structures offered by other governments. 

In this sense, the U.S. Government needs to compete with foreign 

governments making our R&D tax credit more attractive relative 

to foreign alternatives. This will encourage larger firms to locate 

their R&D projects in their U.S. operations rather than abroad 

where the tax incentives might be relatively greater. Further it 

may encourage foreign firms to relocate their R&D in the United 

States. In evaluating this, I think that this committee needs to 

question why other governments are much generous with this type 

of credit. 

Looking at it from a business person’s point of view, I must assume that those countries have made a rational determination that 

it enhances their own competitive advantage and it ultimately pays 

for itself through greater tax revenues. There are many proposals 

for how to maximum the utility of this tax. Although I do not have 

the expertise to tell you exactly how to structure the tax I can offer 

the following general opinions. First I think that the tax should become a permanent fixture of our tax code. Second the rates should 

be made competitive with the rates of other countries. And third, 

you should consider allowing more rapid expensive equipment to 

purchase and support R&D efforts. I believe that the R&D credit 

is critical to the continued innovation and growth of the U.S. economy. And I thank you for considering my testimony. 

Chairman NYE. Thank you very much. 

[The statement of Mr. Barrett is included in the appendix.] 

Chairman NYE. Finally, I would like to introduce Mr. Bendis, 

Mr. Richard Bendis, President and CEO of Innovation America located in Philadelphia, Pennsylvania. Mr. Bendis is a frequent consultant and speaker to international technology based economic development organizations. Innovation America works towards accelerating the growth of the entrepreneurial innovation economy in 

America. We are happy to have you, Mr. Bendis, and we are ready 

to hear your opening statement. 

STATEMENT OF RICHARD BENDIS 

Mr. BENDIS. Thank you, Chairman Nye and Ranking Member 

Schock. Good afternoon. My name is Rich Bendis, and I am the 

President and CEO of Innovation America. I am also a long-time 

member of the American Society of Mechanical Engineers, a founding board member of both the National Association of Seed and 

Venture Funds and the State Science and Technology Institute and 

a former technology entrepreneur who has benefited from R&D tax 

credits. I want to thank the subcommittee for providing me the opportunity to comment on the importance of extending and making 

permanent the research and experimentation tax credit. Innovation 

America, ASME and NASVF support this extension. 

Innovation America also supports the R&D credit coalitions recommendations of a permanent R&D tax credit at a commensurate 

rate for all companies, a 20 percent simplified credit and a longer 

extension of the traditional credit. Since 1981 when the Federal 

R&D tax credit was enacted the U.S. Government sought to encourage businesses to look to the future and invest in long-term 

high risk high dollar investments that would create high wage jobs. 

14 

The R&D tax credit helps to lower the cost of these high risk investments that are necessary to keep American companies competitive and foster growth in the overall economy especially during 

these challenging economic times. 

The National Academies has cautioned that without high quality 

knowledge-intensive jobs and the innovative enterprises that lead 

to discovery and new technology, our economy will suffer and our 

people will face a lower standard of living. Our trading partners 

around the globe recognize the long-term value of R&D and have 

moved aggressively to implement generous and permanent tax policies that attract these vital investments to their shores. In addition 

to the Federal R&D tax program, at least 38 States utilize tax 

credit programs as economic development incentives. A research 

paper published in Economic Development Quarterly ′′in-state R&D 

tax credits and high technology establishments′′ concluded that 

State R&D tax credit programs have significant and positive effects 

on a number of high tech establishments in the state. 

R&D tax credit programs vary from State to State as some offer 

refundable credits set up in a way that the amount provided to a 

company utilizing the R&D tax credit may exceed the company’s 

actual State income tax liability. Some States allow credits to carry 

forward to future years while others set percentage caps on the tax 

liability that can be applied to credits. And additionally some 

States allow for transferability or sale of credits in the event the 

company has no tax liability. That generates cash for these entrepreneurial firms which is needed at those early stages of growth. 

I also believe that while the R&D tax credit program extension is 

a critical component of the U.S. innovation portfolio of programs it 

is not the only area that this subcommittee should be concerned 

with. 

In the chairman’s opening comments, he referred to job creation 

as one of the highest priorities for this administration and Congress. Especially those created by innovative entrepreneurial companies. If recent history is any indication for 3 years following both 

the 1990 and 2000 recessions, small businesses of less than 20 employees were responsible for over 100 percent of the net new job 

creation in America. 

Unfortunately, what worked after the last two recessions might 

not work as well today due to the fragile nature of our financial 

markets. The valley of death, which represents the entrepreneurial 

funding gap between a half a million and $5 million, has gotten 

wider and deeper. Venture capitalist average investment last year 

was $8.3 million per investment and they had their lowest investment quarter in 13 years last quarter. Angel investors last year invested 26 percent less than the prior year due to their own personal financial crisis and 47 out of 50 States have budget problems 

that will negatively impact their entrepreneurial support programs. 

For the first time in U.S. history, we now have a perfect storm affecting our innovation economy. 

In December of 2008, we met with the members of the Obama 

transition team and presented a proposal for creating an national 

innovation framework. The details of this proposal have also been 

submitted to this subcommittee in a white paper which was published by Science Progress. In summary, we recommended that a 

15 

national innovation seed capital jobs fund to funds be created and 

we support the permanent reauthorization of the SBIR and STTR 

programs. We also recommend that an integrated national innovation strategy be developed and that the administration prioritize 

innovation as part of their national agenda. 

Time does not permit a detailed discussion of this innovation 

strategy, but it is complementary to the R&D tax credit discussion 

that has occurred today in this subcommittee hearing. 

In closing I strongly support the permanent extension of the 

R&D tax credit program as it is an extremely important component 

of America’s innovation program portfolio. And I would like to 

thank you for the opportunity to present my view to this subcommittee and request that my written statement as well as other 

supporting documentation be submitted into the record. Thank you 

very much. 

Chairman NYE. We will do that. And again thank you for your 

testimony. 

[The statement of Mr. Bendis is included in the appendix.] 

Chairman NYE. Thank you to everyone, not only for making the 

effort to be in here today, but for bearing with us while we were 

a little bit delayed. I am going to be mindful of the time we have 

kept you here. I am going to ask a couple of follow-up questions 

and then yield to Mr. Schock as much time as he would like and 

then we will conclude. But I want to just pick up on a couple of 

things that I think are important that I have heard today. And one 

is starting with Mr. Heenan. You mentioned the effect of the AMT 

and not being able to take advantage of the R&D tax credit. I just 

want to get a poll. Has anybody else experienced that problem or 

know folks in the industry who have had the same issue by a raise 

of hand if that is clearly an issue. Mr. Heenan do you have any 

suggestions how we can solve that. 

Mr. HEENAN. I guess the simplest suggestion would be to carve 

out the R&D tax credit from the AMT. If you could allow that credit to be taken if someone is subject to AMT then it would eliminate 

the problem. 

Chairman NYE. Well, that sounds very direct and reasonable. I 

want to follow up on also an issue that a number of people have 

mentioned about the expense of compliance. And I believe, Mr. 

Heenan, you and Mr. Ferros had also mentioned having some trouble with that. And again, as I mentioned in my opening statement 

I have talked to other business owners in the Hampton Roads area 

in my district who have said they had some trouble with that. 

Mr. Ferros, can you comment on how you have handled that and 

how big of an expense that has been for you at Blackhawk. 

Mr. FERROS. Well, the way we typically handle it is we have had 

to set up some sophisticated accounting and we do project related 

accounting that is very specific to the R&D process. So our engineers have to maintain time records, project specific records. We 

have a lot of specific documentation that we have to have available 

for the specialists as they come in to ensure that we not only have 

sufficient documentation but we put it in place for a potential IRS 

audit. What I have been told from our tax professionals is that this 

is a tier one IRS topic. Consequently every year we submit our tax 

filings. We feel that the R&D tax credit will be subject to review. 

16 

So we go through the extra steps and consequently the extra cost 

to ensure that we are in compliance. For the small business person, 

I think they just typically avoid it because they don’t want to deal 

with the issues, nor do they have the available cash to go through 

the process that is involved in ensuring that they are compliant 

with the IRS regulations. 

Chairman NYE. I would like to ask if any other panelists have 

any other comments on the cost of compliance and the complexity. 

Yes, Mr. Heenan. 

Mr. HEENAN. At my company, we do government contracting, so 

we are required by the DOD and other agencies to have a pretty 

robust accounting system. So it actually is not an issue for my company today. However, I have had the pleasure of working at three 

other small companies prior to this. None of them did government 

contracting and none of them—all of them did a lot of research, 

none of them went for the R&D tax credit. And the reason was 

simple. We just didn’t have the accounting systems robust enough 

to meet the IRS standard for applying for the R&D tax credit. 

Chairman NYE. One more follow-up question for Mr. Ferros. We 

are talking about complexity. Can you make any comments about, 

and I understand, and I have heard I think pretty consistently 

today that the permanence of the program would be a big help in 

planning for future years, what about the structure and the complexity of the way the tax credit is put together and the difficulty 

in understanding how it is set up. Do you have any comments on 

either ways to make it easier? Would something like a flat credit 

for R&D be something that would be more easy to manage. 

Mr. FERROS. Certainly I am a proponent of a very simplistic approach. Again, if you are a larger company, you can rely on the expertise of professionals. They can depict the interpretation of the 

law. I am a certified public accountant. I don’t understand the law. 

I rely on our professionals to come in and help us be compliant. As 

a small business person, somebody that is focusing on truly innovative and thought provoking and hopefully very significant outcomes, the last thing they want to think about is tax compliance. 

They are focused on technology, they are focused on product innovation, they are focused on growing their business. Consequently 

we need to keep it simple, they need to understand what the net 

business is for them at the end of the day and they should be able 

to scratch it on a single piece of paper rather than call up their 

CPA and go through a very time consuming and sophisticated process. So I am all about simplification. Thank you. 

Chairman NYE. Dr. Schoenbach in your testimony you suggested 

that one of the challenges you see from your perspective is getting 

the universities and the businesses together and bridging a gap between the two. Do you have any specific suggestions of ways we 

could make that bridge easier? 

Mr. SCHOENBACH. I think that it requires from our side, from a 

university side, to be more open to the needs of the industry. That 

we don’t stay in an ivory tower but that we are trying to reach out 

to industry and ask them what we need to do rather than just offer 

them what we have. And I think what happens to a large extent 

now in universities. For the other side, for the industry, I think it 

would be important to reward risk-taking more. Because it is alVerDate Aug 31 2005 14:54 Oct 21, 2009 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\50947.TXT DARIEN
17 

ways a risk, to take a new project, but the payoff could be very 

high. If it is possible to reward risk-taking in a certain way 

through incentives that could be tax incentives, that would probably also encourage small companies, small business to get closer 

to a university and try to find out what is actually available there 

and cross the bridge this way. 

Chairman NYE. Thank you. And I have just one final question 

for Mr. Bendis. You began to lay out, I think, kind of an ambitious 

agenda of other ideas that could be very helpful to us in terms of 

assisting innovative small businesses. I am just wondering if you 

could give us any ideas about specific changes to the R&D tax credit that might help us at least get halfway there. 

Mr. BENDIS. Performance is number one. I think one of the problems is that it is somewhat like the SBIR program, which I know 

the House passed on it yesterday. I think there is a little frustration amongst all of the practitioners in the United States and small 

businesses that they really can’t plan long-term on a number of 

items based on the temporary nature of some of these programs. 

Or they are always going back for reauthorization. So there are a 

number of countries around the world who basically look at what 

the United States creates. Simplify it, improve upon it and then 

they build it into their innovation strategy and make it permanent. 

So the question is why should we continue to be the one that designs the programs, other people benefit around the world and then 

we debate our own programs which everybody agrees with are the 

best working in the world and we come back and debate them 

every couple of years here in Congress. 

So permanence, I think for these kind of programs, as well as 

other critical programs in the innovation portfolio is extremely important. Simplification is another area. And that has been talked 

about by some other panelists. Anything that can be done to simplify the program to where a nonaccounting, nonlegal person can 

understand the legislation and whether or not they can qualify for 

it very quickly would be very advantageous to entrepreneurial and 

innovative businesses. 

Chairman NYE. Well, again, I want to thank all of you. You have 

given us some really good ideas to take into account as we look at 

reauthorization. And I would like now to yield to Mr. Schock for 

as much time as he would like. 

Mr. SCHOCK. Well, thank you, Mr. Chairman. You have taken 

some of my very thoughtful and creative questions already, so I 

will be brief. Dr. Schoenbach, to follow up on Chairman Nye’s question about transferring that technology to businesses, part of the 

bill yesterday was the STTR provision, the small business technology transfer program. And I am just wondering if your university is able to or if you target businesses who may already participate in that program as potential customers for your technology 

that you are developing at the university, if there is a way for you 

to get that information of recipients, in other words of those entrepreneurs who are already involved with that that are interested in 

taking the risk and developing the technology that a university like 

yours would use. It would seem to me that that might be a good 

program to look at for potential partners. 

18 

Mr. SCHOENBACH. I think definitely STTRs, and we have done 

several of them, are a good vehicle, to bring certain projects to fruition. And SBIRs, as well, with subcontracts to the university. So 

this is a possibility and that can be used. It doesn’t work for all 

the projects. Preclinical studies, trials and so on, require in my 

opinion much more funding than is available through these STTRs. 

The other problem sometimes with STTRs and SBIRs, especially at 

Department of Defense, is that you have to see what is available. 

That means you have to find a match first before you can start 

working on a project. And very often there is no match. An innovation coming from a university, might not have reached that stage 

where somebody at DOD has made a decision this is worth funding. There is a certain delay then in all these procedures. But definitely for many projects this is an excellent program, and we have 

made use of it several times. 

Mr. SCHOCK. So the limitations in the program aren’t so much 

in the way the rules are written, but it is much in the grant award 

sizes don’t allow for some of the research. 

Mr. SCHOENBACH. That is what my opinion is. Some of the 

projects require more funding. So this is one obstacle. And particularly if you go into biomedical applications trials are very expensive. The other one is the delay in bringing innovations to industry. 

For example, I go into the Internet and look at what is available 

in SBIR and STTR at DOD. I am an engineer so this would be my 

first thing to do, go in the Web site of DOD. And then I see the 

different topics which are offered. And some of them might fit, but 

most of them will not fit if I do something which is really innovative. So it requires additional work to make people aware of this 

innovation which takes time to do. So this is a matter of involving 

the researcher more in the decision making about topics which are 

worth funding. And I don’t know how this could be done; this is a 

matter of procedures. 

Mr. SCHOCK. Mr. Barrett, you mentioned in your testimony that 

in addition to the R&D tax credit perhaps we could offer some incentives for what I would interpret as like an accelerated depreciation or some kind of incentive for the capital required for the R&D. 

Is that what you are thinking of as like an accelerated depreciation 

method for those investments or do you have some specific ideas 

on what we could do as a part of the R&D tax credit to help lessen 

the burden required for some of the more capital intensive research. 

Mr. BARRETT. I think that more rapid depreciation would be a 

very good thing because in our business the hardware becomes obsolete much more rapidly. Five years, I think, is a typical schedule. 

And it can become obsolete within a year or 2 years, depending 

upon the technology uses. So yeah, looking at that I think a little 

bit more carefully would be warranted. 

Mr. SCHOCK. And then, Mr. Bendis, you talked about improving 

the R&D tax—or research and development tax credit. I am wondering if there are specific States that are exceptionally good at 

this or they have a better R&D than other States that we can 

model our legislation at or at least look to for ideas. 

Mr. BENDIS. As I mentioned, there are 38 States, and a number 

of them have modeled their programs based on what the earlier 

19 

States have done and tried to improve them. I know that New Jersey has done some modifications recently, Pennsylvania has a very 

aggressive program. But I think it would be very easy. And the 

State Science and Technology Institute, which is a technology 

based economic development national association working with 

these kind of organizations in all 50 States, could very easily summarize for you and this committee what some of the best practices 

are and what some of the improvements have been made as well 

as the National Association of Seed Venture Capital. We would be 

glad to work with the committee to look at what some of the innovative things are that are occurring in the States that may benefit 

this legislation as you are trying to either extend or make it permanent. 

And I don’t know if it is too late, but it is never too late to look 

at constant improvements. And I think that the platforms of innovation are really occurring at the State level. So how do you take 

advantage of some of the things that they have learned from best 

practices that can be incorporated at a Federal level. And we would 

be glad to work with you on that. 

Mr. SCHOCK. Well, I don’t think it is too late. I mean, that is why 

we are having the hearing, so we can get ideas and feedback and 

ways to improve. So very good. Thank you all for your traveling 

here and most importantly for putting up with our very crazy 

schedule. Welcome to Congress. 

Chairman NYE. Again, I want to add my word of thanks to everyone for spending this time with us and for sharing your expertise. 

You all are on the front lines here and see this in execution every 

day, and it is our job to listen to you and then to try to make policy 

which reflects the reality of what is going on out in the economy. 

So we thank you again. I am going to ask unanimous consent that 

members have 5 days to submit statements and supporting materials for the record. Without objection so ordered. This hearing is 

now adjourned. 

[Whereupon, at 1:22 p.m., the subcommittee was adjourned.] 

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