4.

levels are maintained, future credits would
be available since the base period would be
reduced by the designation to scientific
education. It is not clear from the Detailed
Description as to whether this is the intent

of this limitation provision.

Proposed Section 44F(e)(8) excludes small business
corporations and service organizations from
eligibility for the basic research provisions.
Considering the fact that the objective of this

portion of the proposed legislation is to generate
funding to expand research capabilites and facilities
as well as educational programs conducted at qualified
organizations, perhaps, it would make sense to
eliminate these exclusions which would broaden the

universe of potential donors. Further, it may

also make sense to expand eligible donors to include partnerships and other unincorporated entities which are actively engaged in a trade or business to

expand the universe even further.

IV.

S.1195

High Technology Research and Educational Development
Act of 1983

This bill is, for the most part, identical to S.1194 in
providing for expansion of contributions of scientific
equipment and the basic research provisions of the R&D

Credit.

The comments contained in Section III above are also applicable to S.1195. This bill, however, is different in a few respects which merit specific mention.

A.

Section 174A(b)(1) includes secondary schools offering
Vocational education or area vocational schools as

eligible recipients of qualified scientific property
or qualified services. This provision is broader
than its counterpart contained in S.1194 which is
limited to institutions of higher education.

We believe that this expanded provision is appropriate in order to provide incentive to satisfy the need for such schools of scientific equipment in addition to computers and ancillary equipment. The programs conducted at many vocational type schools which are not necessarily institutions of higher education are frequently fertile sources of technicians and other educated personnel necessary to the high technology industry. Accordingly, providing incentives for enhancing their educational programs is appropriate in that it will help to satisfy a desperate need for trained technicians in the high technology industry.

B. Section 174A(c)(1)(D) specifies that in the case of property other than computer software the property

C.

D.

E.

is at least 50% assembled by the taxpayer.

The question here is to what basis is the 50% applied;

cost, value, physical content, etc.

This same comment is applicable to Section 174A(c)(2)(D).

It appears that there is an error in the structure of proposed Section 174A in that there is no Section 174A(d)

rather the structure goes from (c) to (e).

Accordingly, Sections 174A(e), (f), (g) should be

redesignated (d), (e), (f) respectively.

Section 174A(f)(2) specifies that a deduction will not

be allowed in connection with transfers of qualified
computer equipment property or qualified scientific
property where such transfers exceed, on a product by
product basis, 20% of the number of units of such
product sold by the taxpayer in the ordinary course of
its business in that taxable year.

The provision as written would apply to transfers of trade
of business property as defined in Section 1231(b),
which it should not since this type of property is
normally not sold in the normal course of business, at
least not to any great extent. To impose this limitation
on trade or business property would be counterproductive
to the intent.

In connection with the proposed revisions to subsection
(e) of Section 44F contained in Section 3 of the bill,
we submit the following comments for consideration:

1. Section 44F(e)(2) contains a cross reference to subsection to (a)(1). Since this refers to

the base period computation, we believe that

this cross reference should be to subsection (e)(1). 2. Proposed section 44F(e)(3)(A) includes a broader definition of "qualified organizations" than S.1194 in that it includes area vocational educational schools (as defined in Public Law 94-482). From a policy point of view, is it clear that such a school would conduct the type of basic research that the credit was intended to encourage?

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I am Bernard L. Hardiek, Director of Taxes, Deere & Company, Moline, Illinois. Deere or John Deere, as we are perhaps better known -- manufactures, distributes and finances a broad line of farm and construction equipment. We are the largest manufacturer of farm equipment in the world employing some 48,000 people worldwide. Last year, the 3,500 independent dealers marketing Deere equipment registered total sales in excess of $4.6 billion.

We at Deere & Company commend the Senate Finance Committee for the interest shown in the important area of taxation of research and development expenditures. Senators Wallop and Danforth and the cosponsors of their bills have demonstrated an understanding, concern and willingness to work that is especially appreciated. Deere & Company supports S. 654 and S. 738 because the time has come for R&D to be encouraged rather than discouraged by the tax laws of this country. Research and development will lead to increased productivity and will help to achieve noninflationary increases in personal income.

When most people think of research and development, the name John Deere may not immediately come to mind. However, in recent years we have ranked consistently within the top 25 companies in the United States in terms of total R&D expenditures. In 1982, Deere & Company employed over 3,500 people engaged in research and spent $242 million on research and development. Stated another way, Deere spent almost $1 million each working day on R&D. Over 90% of the cost of our R&D was incurred in the United States. We also think it is significant that our Company's investment in research and development has averaged over four cents of each sales dollar in recent years.