Delaware lawmakers make case for boosting R&D tax credit

Delaware officials want synergy between large research companies and smaller, independent startups, in a bid to boost the state’s job market.
With that goal in mind, lawmakers have bumped up the state’s research and development (R&D) tax credit for small businesses. Gov. Jack Markell recently signed the bill into law.
In recent years, the state of Delaware has offered R&D incentives to in-state businesses by matching 50 percent of the federal tax credit given to eligible organizations.
To provide these credits, the state draws from a $5 million per year budget, with no distinction between large and small businesses.
But some state leaders thought more could be done to help small companies, especially those who generate less than $20 million a year.
“We researched what was happening with the $5 million,” said state Sen. Robert Venables (D-Laurel), a cosponsor of the bill. “Ninety-eight percent of the companies applying were making sales in excess of $20 million. We figured we ought to give these smaller companies a bigger percentage.”
With Markell’s signature, smaller businesses will now receive double the tax credit: Delaware will match a business’ federal subsidy by up to 100 percent, Venables said.
The bill also ensures that smaller companies who are eligible will receive a greater share of funding than the larger organizations. Larger companies will continue to qualify for up to 50 percent of the federal subsidy.
The program’s $5 million budget will remain the same, but Venables said he would likely support a heartier budget for the incentives if they proved to draw more businesses and jobs to the state.
“Of course we have a lot of engineers — electrical and mechanical — in the area,” Venables said. “We have a lot of people that come up with a lot of different ideas, go on their own and be successful. And if they’re successful, they will expand in Delaware. And we’re looking for any expansion.”

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One such story of expansion belongs to DeNovix, a small instrumentation business based in Wilmington, which began operating in 2012.
DeNovix’s CEO Fred Kielhorn and business director Kevin Kelley started the company with just three other employees. DeNovix, which designs, manufactures and markets lab instruments to researchers studying life sciences and DNA, now boasts 12 employees and hopes to add staff — thanks to a larger tax incentive from the state.
Kielhorn said his company has taken advantage of the tax credit in the past, which has allowed for a speedier development process.
“We started in January, 2012. And from scratch, we built an instrument,” Kielhorn said. “But not only did we build the company, we had to develop competencies and business processes. The tax credit helps us put the resources in at an accelerated pace and alleviated the cash flow issue, which is a big thing for small companies.”
DeNovix’s main instrument is the DS-11 Spectrophotometer, an advanced instrument used to measure and identify materials. With an anticipated increase in financial incentives, Kielhorn said he would like to hire more scientists and researchers and possibly work on two new instruments or projects at the same time.
“The tax credit in and of itself — it’s nice, it’s helpful, but it doesn’t pay the bills,” Kielhorn said. “But double the credit helps that much more. Do I take on two products [at once]? It helps to sway me to do more because of the credit.”
Aside from budding science and technology companies, Kielhorn said he hopes the bolstered incentives do more to unify smaller organizations and businesses across the state.
“The larger the technology ecosystem is here in Delaware, the better it is for all companies,” Kielhorn said. “It incentivizes companies to start in Delaware and I think it will work.”
Venables said he, too, is hoping this can spur business and create jobs across the state.
“Our economy has really been in the slumps. I’m hoping this will help,” Venables said. “I think if we can encourage younger companies to do this, it’s a really good step.”