Manufacturers Sweat Out Fate Of Equipment Write-Offs
Steven Rocheleau says the tax incentives help businesses such as his.
Over the past four or five years, Fitchburg's Rocheleau Tool & Die Co. Inc. has bought a new piece of equipment every year. The upgrades have improved the company's efficiency and helped it turn out more of the metal machine parts it makes.
But owner Steven Rocheleau said the upgrades wouldn't necessarily be financially justifiable if not for a set of federal tax breaks that reward capital investment.
The tax provisions, known as "bonus depreciation" and "Section 179," have been around in various forms for years, and this year they're particularly strong. But, with the current trend of belt tightening and gridlock in Washington, some observers are wondering if those tax breaks will survive in their current form into 2012.
Essentially, the two tax rules help companies deduct the cost of new equipment all at once, instead of over several years as it loses value. Details such as which provision to apply, how much can be deducted and whether the deduction also applies to Massachusetts taxes, vary depending on how profitable a company is, how much equipment it buys and whether the equipment is old or new, among other things. But many companies can benefit.
Double Boost
Rocheleau said the tax provisions help his company in two ways: It gets a boost from the deductions it can claim on its taxes, and it also sells more machinery than it otherwise would to fellow manufacturers that are running the same calculations about their own taxes. Typically, the difference is getting the tax advantage all at once, compared with having it stretched out over seven years.
Lewis Iadarola, president of Plastic Solutions Inc. in Charlton, said his company is in the same position as Rocheleau's. He said one customer in particular is planning a new plastics molding operation.
"In coming up with the justification for the expenditure, they will definitely factor in the depreciation," he said.
Paul Gilligan, tax partner with Westborough accounting firm Stowe & Degon LLC, said the provisions wouldn't give a company reason to buy something it didn't need, but they do mean it's possible for profitable companies to buy equipment while still hanging onto some cash."It will really help with your cash flow," Gilligan said. "I think it encourages investment."
Rocheleau agreed that having these kinds of incentives inspires people to actually make decisions and do something. Otherwise, he said "you may not have done it and seven years from now you're still waddling along."
Iadarola said he finds his customers in the plastics industry can combine the tax incentives with rebates from utility companies to pay for more energy-efficient machinery. He said one type of injection molding equipment, developed in Japan, can reduce energy use 50 to 60 percent while offering greater precision and ease of use to buyers.
"These companies are spending more for the equipment, maybe 25 percent more," he said, "but they're getting a tremendous benefit from the standpoint that they can reduce their energy costs all the way along."
By cobbling together various incentives, Iadarola said, companies can afford the kind of superior equipment that can puts them in a better position in the global marketplace.
The federal government has repeatedly reapproved the two tax provisions over the last several years, and the 2011 versions were particularly favorable for many companies. A significantly smaller version of the benefits is already on the books for 2012, but there seem to be significant questions about whether political leaders will agree to extend the tax breaks in their current form.
If he had a client that was considering buying an expensive piece of equipment in the first quarter of 2012, Gilligan said he might encourage them to move their timeline forward into 2011 in case the breaks aren't extended.
Gilligan said he thinks Section 179, which is mostly relevant to smaller companies, has a stronger chance of being extended in its current form, but he isn't making any bets on what will happen in Washington.
"Based on the debt ceiling and all that, I'm not too optimistic about them agreeing to anything," he said.
WBJ Web Partners
Most Recent
Most Recent
0 Comments