Congressmen want reform of IT depreciation law

ITworld.com –

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"This is certainly going to bring the tax law more in line with reality; as we all know, computer equipment is outdated so quickly now that putting something on longer than a three-year depreciation (period) doesn't make sense," said Dennis Courtney, president of the Capital PC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.

When asked about the differences between his bill and that proposed by Weller, Upton said that details are still being worked out. "The purpose here is to show that there is great bipartisan support" for modifying the tax code, Upton said. Senator Conrad Burns, a Republican from Montana, was on hand at Friday's press conference to show bicameral support for the reform.

The goal of modifying IT depreciation schedules is two-pronged; to give businesses new equipment purchasing incentives in hopes of stimulating the economy, and to boost IT vendors' sales, therefore creating more jobs.

"The technology industry is so important as the engine of our economy," Upton said. "Here's something we can do without a lot of cost that's going to help maybe millions of people, and keep us No.1 in the world" among technology manufacturing countries. He added that the current IT depreciation laws are woefully outdated, as they were written in 1981.

One software company chief executive officer believes that modifying the tax code could have a direct effect on his business.

"This might make it easier for smaller companies to go to Web-based systems, since they'll know with the new equipment they buy it's only two years (of depreciation) instead of five," said Sam Patterson, CEO of ComponentSource Inc., a developer of software components in Kennesaw, Georgia. "And then you could see the trickle down to us, because they may need to buy components to build those Web-based applications."

The Association for Competitive Technology (ACT), an advocacy group for the technology industry, lauded the proposed reform. "This is exactly the kind of innovative solution we need to get our economy moving in the right direction," said ACT president Jonathan Zuck in a prepared statement. "Tax policy needs to be brought up to date with the realities of the technology economy, and today's bipartisan push shows that now is the time."

The House Subcommittee on Telecommunications and the Internet can be found on the Web at http://energycommerce.house.gov/107/subcommittees/Telecommunications_and_the_Internet.htm.

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