America's first extra-terrestrial entrepreneurs are poised on the edge of space. They have the rockets, the spacecraft, the technology, the scientists and the ambition to build orbiting factories in space by the end of this decade.

All they need now are the tax breaks.

Tax credits, deductions and depreciation allowances do not exist in the vacuum of space.

Without the same tax breaks available on earth, "it is fair to say that U.S. space-based businesses will never get off the ground," warns Richard Sussman, a tax specialist at Fairchild Industries, the Germantown firm that is a leader in space commercialization.

Fairchild and McDonnell Douglas Corp. are expected to be the first two firms to build private orbiting laboratories. Already they are lining up companies that want to take advantage of the weightless vacuum of space to manufacture drugs, metals and other products that cannot be made on earth.

And already they are in trouble with the Internal Revenue Service. Even in space, they cannot escape the inevitability of death and taxes.

In the vast intergalactic nothingness, there are no tax shelters. An earthly enterprise that invests in space factories might as well be throwing its cash into a black hole as far as the IRS is concerned.

The tax collectors, not unreasonably, insist that U.S. companies can only claim tax deductions and credits for investments whose "physical location" is within the nation's borders. There are all kinds of exceptions to that rule, but a couple of hundred miles above America doesn't qualify.

What that means to Fairchild is that the $80 million cost of building its proposed Leasecraft orbiting factory would be a very taxing investment, said Sussman, the Fairchild attorney specializing in tax issues.

For starters, there is the 10 percent investment tax credit on new equipment, or more precisely, the lack of it. That's $8 million in extra taxes the company could have to pay.

Then there is the five-year depreciation on equipment provided under the latest tax law. Space stations don't qualify for that either, Sussman said. The lack of investment tax credits and fast write-offs radically alter the project's cash flow demands.

Though Fairchild's Leasecraft would be the first space factory ever built, much of the money spent on it would not qualify for research-and-development tax credits under present law.

Sussman explained that if General Motors builds a prototype of a new car, it can immediately deduct all the cost of developing the pilot model, which winds up sitting in a warehouse somewhere. But you can't afford to build a pilot model of an $80 million space station and leave it in a warehouse; instead you park it in orbit. That's the catch. When something is put into use, it is no longer a prototype. It's a product, and the cost of building it can't be written off as an R&D expense.

Then there is the question of what happens when products made in space are brought back to earth. Are they imports? The Commerce Department seems to think so, Sussman says, and that could have negative tax implications.

The millions of dollars it costs to perform research studies in space can't be deducted as business expenses for the same reason that investments in orbiting platforms don't qualify for tax credits -- neither is physically located in the United States.

And what happens when the National Aeronautics and Space Administration gives a free ride on its shuttle to a commercial space project? "These services will often be treated by the IRS as taxable income," says Sussman. There is no free ride.

The satellite communications industry conquered these same tax problems better than a decade ago. In 1971, Comsat Corp. persuaded Congress to give the first orbiting tax breaks -- but only to communications satellites.

Sussman and other space lobbyists want similar treatment, pushing the Tax Status of Space Act by Rep. Herbert Batement (D-Va.) and a companion bill by Sen. Slade Gorton (R-Wash.).

The message of this space misadventure is not a plea for creating loopholes in outer space. The space tax traps are yet another example of the antiquated complexities of the nation's tax system. When a horse-and-buggy tax law hobbles space-age innovation, it's time to create a new revenue system.

America ought not to be remembered as the nation that put people on the moon but taxed the trip so highly that no one could afford to go.