Overview
This bill requires that taxpayers add back to state adjusted income all amounts deducted on the taxpayer’s federal return for research and development costs legally deductible on the federal return as an ordinary business expense. The bill provides further that taxpayers incurring research and development costs that are added back to state adjusted income may take such expense and amortize it ratably over 60 months beginning with the midpoint of the taxable year in which taxpayer pays or incurs the domestic research and experimental expenses. The bill also reduces the state income tax from 4.5% to 4.45%.
This bill pairs the five hundredth percent income tax reduction with new tax policy and appropriations to pay for the income tax reduction. The bill includes transferring over $88M from the Utah System of Higher Education Capital Projects fund. The transfer of funds and the new taxes generated by the tax policy change to require amortization of Research and Development costs appear to be the funding sources for the income tax rate reduction.
This legislation de-couples the state tax code from the federal tax code with regards to how research and development costs are expensed for tax purposes. Since 1954 the federal tax code has recognized research and development costs as ordinary business expenses. In 2017 the Tax Cuts and Jobs Act was passed by the federal government implementing the requirement that R&D expenses be amortized over 60 months starting in 2022. Due to the negative impacts of the tax policy change on research and innovation combined with research-intense industries pushing back on the policy, the federal government reverted back to the treatment of R&D expenses as ordinary business expenses recognized in the period incurred. The vehicle for that change was the One Big Beautiful Bill passed in July 2025.
There have been other states that have decoupled from federal government treatment of R&D expenses as ordinary business expenses including California, Delaware, Washington DC, Hawaii, Maine, Michigan, Pennsylvania, Rhode Island, Vermont and Virginia. States that rarely align with business-friendly policy that Utah has long been known for.
BioUtah strongly opposes this legislation for the same reasons the policy was opposed at the federal level. Research is the fuel of innovation and innovation is the engine for creating jobs. This policy will not only weaken research in Utah but seriously slow innovation while in the process penalizing members of the life sciences industry that have been such a strong contributor to the state economic engine. A tax policy that is punitive toward research-intensive companies cannot help but cause loss of jobs and discourage companies from considering Utah for research functions.
It may also create tax liability for small companies that have no revenue other than collaboration agreements or taxable grants who can no longer match expense of research against the income used to fund the research resulting in funds that would have been used for research being diverted to pay income tax.
Some argue that companies are not harmed because they benefit from the reduced income tax rate. However, a five one-hundredth of a percent drop in income tax rate will not offset the extra tax paid by profitable companies who lose significant deductions related to research and development. Furthermore, as previously stated, it could create a tax liability for a non-revenue company that only has research grants as taxable income.
Overall, this policy is bad for the life sciences industry and bad for the state of Utah that has identified life sciences as one of the key targeted industries because of the high-paying jobs it generates. This tax policy stands in direct conflict with the economic development objectives of the Governors Office of Economic Opportunity.
Proponents of the bill argue that they feel it is better policy to provide a five one-hundredth percent reduction in tax rate to all taxpayers than allow a portion of businesses to benefit from expensing research & development costs as an ordinary business expense. It is a direct assault on industries in Utah that are research-intensive and will ultimately drive such companies and jobs to jurisdictions with more favorable tax policy and punish those who remain in Utah.
__________________________________________________________
On February 26, a second substitute was introduced that removed all language about changes to the tax policy addressing R&D expenses and eliminating the appropriation of capital project funds from the system of higher education. Given these changes, BioUtah now supports the bill.
Status
The bill was introduced and numbered on February 19, 2026, just 11 days before the end of the legislative session. The bill appears to have support of House leadership but faces an uphill battle in the Senate. Regardless, opposition to this bill needs to be loud and strong from the life sciences industry. After the second substitute was introduced removing the problematic language the bill remains in the House rules committee.