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Tax break for software on Hill

Legislation to give the software industry a tax break is introduced during Congress's very first week back on the Hill.

Legislation to give the software industry a tax break enjoyed by other U.S. industries was introduced during Congress's very first week back on the Hill.

Authored by Congresswoman Jennifer Dunn (R-Washington), the Software Export Equity Act would let the software industry benefit from the 1971 Foreign Sales Corporation statue, which gave an export tax exemption to U.S. manufacturers. The statue was enacted to help industries compete with foreign exporters back when the software business didn't exist.

The bill has gained strong bipartisan support and cheers from the software industry, which has criticized the government for not amending the legislation sooner. If the bill passes, software companies could get up to a 15 percent exemption on export sales.

"The bill is exactly what the industry has been asking for," said Mark Nebergall, an attorney for the Software Publishers Association, a Washington trade organization. "It will level the playing field for U.S. software companies against foreign competitors who enjoy tax advantages in their home countries for exports." The software industry exports $26 billion in products annually. Industry groups say the exemption could mean even more sales and secure America's position as a world leader in software development.

It is no surprise that Dunn, who also sits on the House Ways and Means Committee, is sensitive to the software industry's needs. Her state is home to software giant Microsoft, which made its own case against the "unfair" tax rule by filing a petition with the U.S. Tax Court in August. It argued that software should receive the same kind of export tax benefits as industries such as the music and film industries.

Exporters of music CDs get the exemption, but those who ship CDs that contain software do not. The Internal Revenue Service, which interprets the current statute, amended its rules in 1986 but still left software companies out. Microsoft said today that it is still waiting for a court date regarding its challenge to the IRS rules.

Industry supporters of the bill include the Business Software Alliance, American Electronics Association, Nasdaq, and numerous state software associations.

Sponsors say the software industry's efforts and the bill's bipartisan support make it a winning ticket. "We're confident that this bill will be enacted this year," said T.J. Petrizzo, Dunn's legislative director.