State and local governments could issue tax-exempt bonds to finance certain projects involving scientific research and private entities under a bill introduced by Rep. Emanuel Cleaver, D-Mo.
The bill was introduced by Cleaver, a member of the House Financial Services Committee on July 31 and was referred to the Ways and Means Committee, which oversees tax legislation.
Under the bill, which is directed at taxable subsidiaries of governmental or nonprofit organizations, receiving the right to intellectual property created by scientific research would not qualify as private business use - one of two tests for private-activity bonds - if it meets two criteria.
First, a governmental unit or 501(c)(3) organization must have conducted the research. And second, the recipient of that intellectual property must be controlled by one or more governmental units or 501(c)(3) organizations.
The bill would allow nonprofit organizations to pursue scientific research projects, regardless of whether they fall under a safe harbor established by the Internal Revenue Service's Revenue Procedure 2007-47, which details the conditions under which such an agreement would not result in private business use.
Under the federal tax code, tax-exempt bonds can be used to finance a project if the project is not deemed to have certain amounts of either a private business use or private payments. A bond generally is only tax-exempt if 10% or less of bond proceeds are used for any private business use or 10% or less of the principal or interest costs of the bonds are paid off with private funds.
Under this proposal, income earned from the kind of intellectual property described above would not count toward the limit on private-business use.