The tax revenue impact of restoring immediate research and experimentation (R&E) deductions is mostly a timing effect. But what does that mean, exactly, and how significant is the effect? I explore that question in this issue of The SALT Road.
Decisions about conformity to the One Big Beautiful Bill Act (OBBBA) are front-of-mind for many lawmakers as state legislatures reconvene for 2026. That’s understandable, but hesitation about restoring first-year research and experimentation (R&E) deductions is troubling. As I have written here and elsewhere, allowing an immediate deduction for research and development costs is sound tax policy—and, until very recently, there was near-universal agreement on this point. The federal government adopted the provision in 1954 and every state with a corporate income tax followed suit.
I won’t rehash the details of how a gimmicky reconciliation provision shifted the R&E deduction from first-year to five-year amortization in 2022, or how the OBBBA restores long-standing policy. You can read more about that in my prior coverage of the issue.
What I’d like to focus on: what it looks like for a state to transition back to first-year R&E expensing after shifting to amortization. I and others discussing the issue often note that, for states, amortization—and its reversal—is mainly a timing effect. But what exactly does that mean? My goal here is to demonstrate the timing effect with tables and charts.