Help for High-Tech Firms Seen in Tax Bill

To some, it is the fiscal equivalent of rearranging deck chairs on the Titanic.

But to others--including Orange County’s high-technology companies--the Tax Reform Act of 1986 may be more boon than boondoggle, according to Greg A. Morrow, a partner and tax specialist at the Irvine office of Deloitte Haskins & Sells.

Most of the county’s computer and electronics firms have struggled with slumping sales in recent years. But through the tax bill--expected to reach the House next week and the Senate next summer--help may be on the way, Morrow said in an interview Wednesday.

And the measure also could help the local retail and service industries, Morrow said. His comments followed a seminar with more than 100 high-tech company executives at the Irvine Marriott hotel.

True, the proposed reforms would generally shift more of the tax burden from individuals to corporations by lowering the overall tax rate, abolishing some tax loopholes and removing up to 6 million individuals from the tax rolls, he said.

Designed to Aid High-Tech

But President Reagan instructed his aides to design the bill to aid the high-tech industry, Morrow said. “It’s really more of a reallocation than a reform package,” he said.

Orange County’s high-tech firms should be especially pleased with a three-year extension of tax credits for corporate research and development. The present credits were scheduled to expire Dec. 31.

“Every high-tech company in Orange County will be affected by this additional R&D; funding,” Morrow said. And while the new proposal would reduce the credit to 20% from 25% and make fewer companies eligible, he said, 20% is better than nothing.

Local high-tech firms--as well as retail and service companies--may also find themselves paying a smaller share of taxes under the proposed reforms, Morrow said.

Share of Tax Pie to Shrink

Because the rate that companies can deduct for depreciation could shrink to 36% from the current 46%, the smokestack industries that long have sheltered their tax liabilities through avenues like depreciation would pay more taxes under the plan. High-tech and retail companies, which are not capital intensive, would see their share of the tax pie diminish.

Also, a number of corporate fringe benefits that Reagan initially wanted taxed still may be protected under the bill. That, too, will aid the county’s high-tech industry.

“High-tech executives are generally more mobile. You have to get more creative in the fringe benefit area to attract these individuals,” Morrow said.

On the negative side of the ledger, the tax reform proposal could make it more difficult for companies to qualify for some foreign tax credits. Because many of Orange County’s high-tech firms have subsidiaries outside the United States, the change could kill some of the tax credits many now enjoy, Morrow said.

Little Benefit for Smaller Firms

Some smaller high-tech firms, however, will feel little effect no matter what kind of tax reform passes because they are start-up companies that do not yet have profits the government can tax.