Who Benefits from the Domestic Production Activities Deduction?
The Domestic Production Activities Deduction (DPAD), a 9% tax deduction for manufacturing activities in the U.S., is designed to be economically equivalent of a 3% reduction in tax rate on qualifying activities.
It is estimated that nearly one-third of all U.S. corporate activity would be deemed qualifying activities under the IRS guidelines for DPAD. Along with manufacturing and production companies, this includes mining, oil extraction, farming, construction, architecture, engineering and the production of software, recordings and films. DPAD was created to encourage U.S. job formation, therefore qualification can vary depending on the nature of the business.
The manufacturing industry receives two-thirds of the Domestic Production Activities Deductions that are granted each year. Large portions of the other one-third are usually granted to information technology companies and mining operations.
In 2012, DPAD provided over $10 billion worth of tax deductions to U.S. manufacturers. Although the manufacturing industry as a whole benefits more from the tax incentive, DPAD proves to be more valuable to other U.S. industries, such as information technology and construction as seen in the chart below.
If you would like more information on tax incentives for your business, please contact a Texas R&D Tax Credit Solutions specialist.
Table Source: crfb.org