Tax Bill’s Impact to Vary Greatly Among Sectors : Heavy Manufacturing and Real Estate Seen Hard Hit; Technology, Retailing Win

The sweeping tax bill approved by congressional negotiators over the weekend is expected to have a dramatic impact on American industry. Heavy manufacturing and many real estate developers have railed against the loss of cherished tax incentives. But retailers and technology firms, which have long felt overtaxed, generally have cheered the move to lower overall corporate tax rates. While the enthusiasm of some early corporate tax-reform advocates has waned, some opponents have found the process less painful than anticipated.

With approval of a final bill by Congressional negotiators--and expected approval next month by the full House and Senate--American business is now bracing for this massive overhaul of the nation’s tax system. Here is a look at how various industries will be affected:

Technology

The tax package is a “mixed bag that is less full” of benefits for high-technology companies than industry groups hoped, said Ralph Thomson, spokesman for the American Electronics Assn.

The new 34% top corporate tax rate will benefit many companies, especially the computer makers who historically have paid high rates.

But the loss of other provisions--in particular the preferential tax rate on capital gains--may override those benefits.

The industry long has looked to free-flowing venture capital for succor. Under the new tax package, which treats profits on long-term investments just as ordinary income, the pool of risk capital will be smaller and more expensive, Thomson said. That could put a dampening effect on the birth of new, innovative technology companies and prompt divestment of stocks that are more risky and pay smaller dividends.

Firms that have had high tax rates but benefited little from the investment tax credit could come out ahead. Such companies include International Business Machines, which pays 1/35th of the corporate tax bill in the United States, according to Michael Geran of E. F. Hutton.

In 1985, IBM’s actual tax rate was 43.6%, but investment tax credits accounted for less than 3% of reported taxes, according to a report by Salomon Bros., a Wall Street investment banking firm. Other firms in a similar position include Burroughs, NCR, Tandem Computers and Hewlett-Packard.

However, the loss of the investment tax credits--which allowed companies as much as 10% credit on the cost of new plants and equipment--could hurt the high-tech firms, such as semiconductor makers, that are higher-than-average investors in new equipment.

Also, customers of high-tech products would be hurt--such products represent about one-third of all capital goods. Computers alone accounted for 14% of all purchases of manufacturing equipment in 1984. The bill may stifle the much sought after pickup in orders.

Technology companies, which account for more than half of all private R&D; spending in the U.S., are also disappointed by the provision for research and development tax credits. The package now allows a 20% credit, and the credit dies at the end of 1988; the industry wanted to retain the current 25% rate for at least a four-year period. In leading-edge technologies, like computer chip making, R&D; budgets run as high as 25% or 30% of annual sales.

Software developers and biotechnology firms, although heavily R&D-oriented;, won’t be as hurt by the loss of the investment tax credits as the more mature and capital-intensive companies. Software maker Microsoft said the tax bill would save it $40 million annually.