Lawmakers Ponder Tax Breaks

By Caron Carlson  |  Posted 2001-10-15

If you could receive a tax write-off for nearly one-third the value of new computers next year, would you buy more? Would you buy more firewalls and other security-related hardware and software if you could expense them immediately?

Many in the high-tech sector think so. They are pressing for accelerated depreciation of IT equipment and software as part of proposed economic stimulus legislation under negotiation in Congress.

Lawmakers are considering numerous proposals for bringing depreciation rates into closer alignment with the useful life of products, but one proposal gaining momentum late last week would allow enterprises to write off 30 percent of new capital assets in the first year, according to industry sources.

The idea is to encourage companies to purchase assets in the near term despite the slowing economy. Current depreciation rates, established in 1981, do not reflect the life spans of todays products. Desktop computers, for example, are considered to have a useful life of five years. "The useful life of a desktop computer is closer to two years, and it would make sense if the tax code reflected that," said Caroline Graves Hurley, tax counsel at AEA, a technology trade association in Washington. "None of the depreciation schedules make sense.

"While House leaders have warned that individual industries should not be seeking special favors in the economic stimulus package. The capital asset depreciation measure would be particularly helpful to the IT industry; all businesses that purchase IT goods would benefit, but the IT industry would benefit both from the accelerated depreciation and from increased sales, making them staunch supporters of the proposal."

"This entices people, at a time they need enticing, to invest in durable goods," said Robert Cresanti, general counsel for the Information Technology Association of America, in Washington. "It is like getting a rebate on a product, and that stimulates current activity."

In light of the Sept. 11 terrorist attacks, lobbyists from many industries are also supporting a measure sponsored by Rep. Jerry Weller, R-Ill., that would allow businesses to write off all safety- and security-related products in the first year of purchase. This would include computer software such as firewalls in addition to non-IT-related goods, such as electronic alarm systems and bulletproof glass.

The House Committee on Ways and Means was slated to take up the legislation last Friday. The legislation is likely to encounter a lengthier negotiation process in the Senate, however, where several members are supporting initiatives targeted to specific industries, according to industry sources.

A separate initiative to extend the moratorium on discriminatory Internet taxes may be attached to the economic stimulus legislation if it comes to a vote before Oct. 21, when the current moratorium expires.

Before Sept. 11, some lawmakers backed efforts to include provisions that would give states the right to levy sales taxes on Net sales, but those efforts were curtailed. The moratorium will likely be extended without added measures, but the extensions length is unclear.

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