So far our State Tax Series has looked at technology niches including semiconductor manufacturing, digital goods, software companies and medical device companies. Today we look at the multi-state tax issues that the BioTech and Pharmaceutical niche faces. Keep reading for the details!
An Overview of the BioTech and Pharmaceutical Industry
BioTech companies specialize in researching ways to duplicate or change living cells in an effort to make them more predictable and controlled. They rely on genetics research to create products to help improve quality of life or cure those with a variety of diseases and conditions. The top BioTech companies currently include Emergent Biosolutions Inc, Amgen Inc, Abbvie Inc and Immucell Corp.
Pharma companies specialize in drugs. They extensively research them in-house in addition to licensing them from academia, other firms and biotech companies. Examples of these companies include Pfizer, Merck & Co, Johnson & Johnson and Bayer.
State Tax Issues for the BioTech and Pharmaceutical Industry
Curious what state tax issues these companies face? Here’s a brief overview.
- Nexus: Because BioTech companies don’t conduct a lot of sales, at least initially, nexus tends to relate to where the company is physically located and where the research takes place. However, it’s important to pay attention to where they are “doing things” as they may have researchers in various states. Pharma companies, however, conduct sales all over the country, so they need to be very aware of states in which they’re sending sales representatives; even if they don’t make a sale, their sales activities may create nexus.
- Sales tax: BioTech companies often don’t trip into sales tax, because they may not be selling products while they are in research phases. These types of companies are often more focused on making sure they are paying the proper amount of use tax on items purchased. Also, to the extent that they purchase equipment that will be used in research, they may qualify for certain sales tax exemptions (like the California Manufacturer’s Exemption).
- Income tax: It’s important these companies make sure they are properly accounting for income tax (and net operating losses) by state. If a company has nexus in a state for income tax purposes, they may wish to consider filing there in order to properly establish net operating losses. If the company is profitable, they should check for tax credits that might be available to the industry specifically, or generally, like the R&D credit.
How Miles Consulting Assists BioTech and Pharmaceutical Companies
The BioTech and Pharmaceutical Industry is constantly changing and innovating, which is why it’s important these companies stay up-to-date on the wide variety of tax codes throughout the country. At Miles Consulting, we work with clients to make sure they are appropriately filing in states in which they have nexus, are claiming proper exemptions available in various states for sales tax, and are benefitting from income tax credits and incentives.
As always, please contact us if you want to know more about nexus, sales tax, credits and incentives your business may be eligible for and other multi-state tax issues. We’re happy to answer your questions!
Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects, including the new California Partial Manufacturer’s Exemption for Sales Tax. To learn more, contact us today at www.MilesConsultingGroup.com.
