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Oregon Launches Tax Credit Program to Support University Tech Commercialization

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The state of Oregon this month kicked off a program that will allocate an evergreen fund of $14 million in tax credit-eligible donations to state-supported universities to fund the commercialization of university research and university entrepreneurial education.
 
The initiative is unique, according to state officials, who said it is the first such program to offer an incentive for state citizens to invest in commercializing university research.
 
The program, called the Oregon University Venture Development Fund, is the result of a joint effort over the last few years by the Oregon University System and the Oregon Innovation Council, a leadership team comprising representatives from industry, government, and universities. The council was created in 2005 by Governor Ted Kulongoski and state legislature to drive the state's innovation strategy.
 
Under the program, Oregon’s eight state-supported universities are eligible to receive a total of $14 million in donations to be divvied up into individual university development funds based the size of an institute’s research enterprise.
 
Participating universities and the total funds they will be eligible for under the program are Oregon State University ($5.35 million); the University of Oregon ($3.27 million); Oregon Health & Science University ($4 million); Portland State University ($880,000); and Oregon Institute of Technology, Western Oregon University, Southern Oregon University, and Eastern Oregon University ($500,000 total).
 
Officials indicated that the donations will create an “evergreen” endowment to foster innovation because universities will repay the state for claimed tax credits with income from royalties and licensing fees, at which point the state will issue additional tax credits as the initial ones are repayed.
 
Individual or corporate taxpayers in Oregon who donate to one or more funds are eligible for an Oregon income tax credit equal to 60 percent of their donation. The credit claimed in any one year cannot exceed 20 percent of the donor’s total contribution to the fund, $50,000, or the donor’s tax liability, whichever is less. Any unused portion of the credit may be carried forward to subsequent years until it is used.
 
Donors can make contributions in the form of cash or stock to their university of choice or in general to be allocated to each university based on their eligibilities. However, they cannot specify how their contributions are used.
 
Donors also submit an application for the tax credit with their gift. This is reviewed by the university and, if approved, the school issues a tax credit certificate confirming that the gift is eligible for the credit.
 
In most cases, donors are also eligible for the standard federal charitable tax deduction — making the program a pretty sweet deal for higher-bracket taxpayers.
 
“This tax credit is one of a kind,” Oregon state treasurer Randall Edwards said in a statement. “No other state has a program where donors can receive such a generous tax credit in return for helping move research from lab to market.”
 
Harold Ashford, a certified public accountant with a private practice in Bend, Ore., and one of the early donors to the program, told BTW that it would be hard for any tax-paying individual or corporation in the highest federal bracket to ignore the tax benefits.
 
Those individuals and companies, he said, would essentially be eligible to receive a 95 percent tax savings and credit on every dollar they donate. “You don’t see that very often,” said Ashford, who is also on the board of trustees for the Oregon State University Foundation. “The tax savings — both the credits in the state and the deductions on the federal level — make it a pretty significant tax savings to people who donate.”
 
Ashford added that as a CPA, he understood that “this was one of the few times in life that we can decide how our tax money is spent. And, I think it is a great program. Getting these projects and this research out to the real world and having a funding source to do that makes a lot of sense.”
 
The program provides guidelines for the way each university should use its venture development funds, although there will be differences from university to university, John Cassidy, vice president for research at OSU, told BTW.
 
“Each institution has set up guidelines for these venture development funds, and these guidelines have all the details about the process within the university in terms of allocating; to some extent, raising; managing; and eventually, paying the funds back,” Cassidy said.
 
Although there is an entrepreneurial education component to the venture funds, Cassidy said that the money will primarily be used for research and development grants.
 
“When you think about what we’re trying to do with it, which is gap funding — in other words, trying to move things from an idea or prototype into something that would be closer to either diffusion or commercialization — you can argue that this money is moving things a little bit from the research end to the development end,” Cassidy said.
 
“It’s designed to support the further development of university IP,” he said. “It can’t be used to support a new company or IP by someone not connected with the university. But it can track out into a new company if it is based on IP that came from the university. It can basically fill a gap between research grants and commercialization.”
 
Cassidy also said that grants will likely last for a maximum of three years, at which point they can be re-applied for, and that individual award amounts will likely fall in the quarter-million-dollar range. He added that the grants cannot be used for certain things, like purchasing capital equipment or paying the salary of a principal investigator.
 
“It’s designed to pay for the personnel that are needed to move the project along, and the laboratory supplies and expenses that come along with it,” he said. “This is all set forth by the guidelines.”
 
Investing in Oregon’s Future
 
The venture development fund program got its start in 2005 when the Oregon state legislature passed a bill providing a tax incentive for donors who choose to support commercialization of university discoveries. Leading the charge as sponsor of the bill was Senator Frank Morse (R-Albany).
 
After some tweaking, the legislation was finalized earlier this year with passage of Oregon state senate bill 582.
 
According to Kirby Dyess, president of the State Board of Higher Education, the statutory governing board of the Oregon State University system, one of the biggest adjustments that needed to be made to the bill was changing some general language that was interpreted by federal officials to mean that the program would be administered by university officials alone and not the universities’ foundations.
 
In fact, the bill was intended to be handled through a special fund set up through the individual university’s foundations, which was a “much better way of doing this for several reasons,” Dyess said.
 

“I think this is going to be a watershed piece of legislation, and that we’re going to see some incredible benefits out of this. I don’t think we’ll have any problem at all getting enough donors for $14 million.”

“Obviously at most of the universities, the foundations and most of the development officers are critical to this type of program, and we were going to leave them out,” Dyess said. She chalked the oversight up to a lack of precedent.
 
“We didn’t have headlights in front of us, because no one else out there had done a similar piece of legislation,” she said. “With very innovative programs like this, you have to understand exactly how it’s going to work to get it through. The wording was just too general. We knew what we wanted, but we didn’t write it down as specifically as we needed to. So we clarified it, because we sure didn’t want to confuse donors.”
The finalized version of the bill can be seen here.
 
Dyess said that Oregon has some significant areas of scientific and technological expertise among its state-supported universities. According to figures from the Oregon University System research council, the state ranks sixth nationally in federal R&D expenditures per faculty member at its public universities.
 
However, although the state had a decent number of angel investors and venture capitalists available, it had very little in place to help universities bridge the so-called “valley of death” in commercializing very early-stage technologies.
 
“We looked at several ways to do that, and obviously, like most state-supported universities, there is not a lot of funding coming from the state at this point,” she said. “So that didn’t look like a good option.
 
“But we had a lot of business leaders and potential donors that were very interested in this area,” she added. “I think this is going to be a watershed piece of legislation, and that we’re going to see some incredible benefits out of this. I don’t think we’ll have any problem at all getting enough donors for $14 million.”
 
Oregon is far from the first state to provide gap funding to help commercialize university technologies and, in fact, was a little behind the curve in that area, as per Dyess’ comments. In addition, several universities — especially those with particularly large endowments or significant technology commercialization activities, such as Stanford and Columbia — have university venture funds in place to accelerate technology transfer.
 
But the Oregon program is the only instance where a state has provided an incentive for its citizens to invest their money into speeding the commercialization of university research, several officials told BTW.
 
“The thing that’s unique about this is that it fits into the category of state investment in innovation,” said OSU’s Cassidy. “In addition to this, the state is investing in new signature research centers, and emerging industries like renewable energy. The state is actually putting money on the table, which then helps us leverage federal support and focuses us in a way that we become more competitive for grants and contracts from other sources.”
 
According to Dyess, the program pulled in about $500,000 in donations without advertisement on its first day.
 
Entities that have already contributed to the fund include Ashford; Gordon Hoffman and William Newman, managing directors of venture capital firm Northwest Technology Ventures; and pharmaceutical delivery company Bend Technologies.
 
“One of the coolest things about this is that corporations can participate,” Dyess said. That’s why I don’t think it will be any problem getting to the $14 million. You can imagine that a corporation getting these kinds of tax benefits, as well as getting the opportunity to invest in the translation of research into something that can be beneficial to them, is very important.”

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