Congressmen want reform of IT depreciation law

ITworld.com |  Business

A group of U.S. congressmen held a press conference to push for modifying the current tax code regarding depreciation of IT equipment, arguing that such a move could jump-start new technology purchasing and give the IT industry a much needed boost.

Noting that the technology industry was in decline before the Sept. 11 terrorist attacks and is now suffering even more, these congressmen are hoping reform to IT depreciation tax code will become part of the multibillion dollar economic-stimulus package currently being crafted in the White House and on Capitol Hill.

Rep. Fred Upton, a Republican from Michigan who is chairman of the House Energy and Commerce Committee's Telecommunications and Internet Subcommittee, said he hopes this package will be decided upon by the end of October.

Rep. Jerry Weller, a Republican from Illinois who is a member of the House Ways and Means Committee, introduced in April the Expensing Technology Reform Act of 2001 (H.R. 1411). This bill would allow businesses to deduct 100 percent of the price of all IT equipment purchases from their taxable income, instead of having to depreciate the items over a five year period, as the current law states. This adjustment would better align U.S. tax code with IT purchasing patterns and remove the disincentive to buy new equipment on a more regular basis, Weller said.

On average, businesses replace their computers "every fourteen months, so the actual life of an office computer is about a year. It doesn't make sense to discourage the replacement of that computer" by forcing companies to carry the purchase on their books for five years, he said.

"This is certainly going to bring the tax law more in line with reality; as we all know, computer equipment is outdated so quickly now that putting something on longer than a three-year depreciation (period) doesn't make sense," said Dennis Courtney, president of the Capital PC Users Group in Brookeville, Maryland. However, Courtney added that he doesn't believe such a modification would necessarily spur technology spending, since most computers are bought on a need basis, not as a depreciable expense. "I think it's going to help businesses write (IT equipment) off faster; it's a tax issue as opposed to a business issue," he said.

Upton, along with Rep. Gene Green, a Democrat from Texas, this week proposed legislation called the High Tech Survival Act (H.R. 2981). It calls for shrinking depreciation cycles of IT equipment -- defined as computers, peripherals, wireless telecommunication products (with the exception of towers, buildings, and cables), networks and related hardware -- from five to two years; of computer software from three to two years; and of spectrum licenses purchased via auctions from 15 to seven years.

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