What does the U.S. military do when an expensive asset like a plane or a weapons system begins to break down?
Often, it turns to companies like Parts Life, Inc.—an innovative manufacturer that can reverse-engineer obsolete parts and help find solutions for hard-to-replicate products. But after a tax law change went into effect in 2022, the New Jersey–based manufacturer is facing increased costs for research and development, creating a barrier to the kind of innovation that is the focus of its business.
The change: Until the beginning of 2022, businesses could deduct 100% of their R&D expenses in the same year they incurred the expenses. Starting this year, however, a tax law change requires businesses to spread their deductions out over a period of five years, making it more expensive to invest in growth and innovation.
A focus on innovation: For Parts Life, coming up with new ideas is an essential, daily activity.
- “Parts Life is built around being a solutions provider,” said Parts Life President and CEO Sam Thevanayagam. “We are providing solutions for very expensive and mission-critical assets that are extremely strategic for the defense of the nation, but are also older—so their parts are not necessarily being supported.”
- “That’s where we come in to do reverse engineering. So, we’re looking at an old problem, but using innovation to solve it going forward.”
A benefit for savings: By helping the military extend the life of its assets, Parts Life also helps taxpayers.
- “We’re taking care of the warfighter and the taxpayer,” as Thevanayagam puts it.
A look ahead: As global conflicts shift, the U.S. military needs suppliers like Parts Life to help it develop solutions for future challenges, too.
- “Right now, our military is coming out of conflicts in Afghanistan and Iraq, but future conflicts may involve different terrain with different problem sets,” said Thevanayagam.
- “The work that we are doing today is helping them figure out how to approach those challenges. We’re having them tell us where they need to be, and then we’re helping them with the innovation they need to be successful.”
A tough choice: With the change in tax law, companies like Parts Life will be forced to make difficult decisions about how to spend scarcer resources, harming their ability to do critical, forward-looking work.
- “Currently, we’re leaning forward in resources and talent to lead the future,” said Thevanayagam. “If the government is going to pull the rug out from under us, we’re not going to be able to be aggressive. We’ll have to focus on maintaining our business rather than investing in new innovation.”
Our take: The NAM has pushed forcefully for the tax change to be reversed—and in October, told policymakers that the R&D amortization provision poses a “serious threat to our national security,” in part because of its impact on manufacturers like Parts Life that supply and support the U.S. military.
The bottom line: “The only way for us to continue to be relevant is to make sure that we’re investing in innovation and seeing what we can do to be a part of designing the future,” said Thevanayagam.
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