Why Advocacy Matters: How Section 174 and PA HB1129 Fuel Startup Growth
By Dean Miller, President & CEO, Philadelphia Alliance for Capital and Technologies (PACT)
At PACT, advocacy is not just a value—it’s a strategy. We’re working to ensure policy supports the innovation economy across Pennsylvania, especially for R&D-driven startups. Two important pieces of legislation—Section 174 of the federal tax code and Pennsylvania House Bill 1129—represent major wins (and future opportunities) for growing companies.
PACT is actively backing both. Section 174 was restored thanks in part to our sustained lobbying efforts alongside our national partner, TECNA. Meanwhile, HB1129 is advancing in Harrisburg, following formal testimony delivered by PACT leadership.
Let’s break down these legislative efforts—and why they matter.
Section 174: A Lifeline for R&D Startups
Section 174, first introduced in 1954, allows companies to deduct research and development (R&D) costs in the year they occur. These deductions apply to wages, software development, patents, supplies, and some overhead expenses tied to R&D.
In 2022, changes to the tax code eliminated this upfront deduction. Instead, businesses were forced to spread the tax break over five years. This shift hurt startups by increasing their short-term tax burden, reducing immediate cash flow, and—ironically—penalizing innovation.
Some founders even had to take out loans to cover taxes in years when they didn’t earn any profits.
Thanks to consistent advocacy, Section 174 has now been restored—and made permanent. Even better, the revision is retroactive for companies earning less than $31 million annually. These are exactly the kinds of companies hit hardest by the earlier change.
PA House Bill 1129: Unlocking Non-Dilutive Capital
In Pennsylvania, House Representatives Paul Friel and Jonathan Fritz introduced HB1129 to help local tech and life sciences companies turn their losses into growth capital.
The bill proposes a Net Operating Loss (NOL) Transfer Program, allowing eligible startups to sell unused NOLs to profitable Pennsylvania-based companies. The buyer receives a tax break, while the seller receives cash—creating a win-win model that has already succeeded in New Jersey.
Why is this so critical? Most early-stage startups accumulate losses long before they ever turn a profit. These NOLs just sit on the books with no immediate benefit. HB1129 offers a way to turn those losses into cash—money that can be used to:
- Hire and retain top talent
- Invest in R&D
- Expand into new markets
- Fund product development
Unlike Section 174, HB1129 is still moving through the legislative process. It needs your support.
PACT is pushing hard to get this bill passed. Soon, we’ll provide members with a simple way to contact their representatives and voice support.
PACT Advocacy: Real Work, Real Impact
We believe advocacy creates economic opportunity. From Washington, D.C., to Harrisburg, PACT continues to fight for policies that help startups grow and thrive in Pennsylvania. These two pieces of legislation demonstrate what smart, sustained advocacy can achieve.
Stay tuned—and stay engaged.
Learn more ways on how you can get connected to companies, thought leaders, and business networking.
Learn about PACT Membership and see upcoming events for investors and entrepreneurs in technology, healthcare, and life sciences. Plus – get on PACT’s newsletter to stay connected with the latest resources!
