Tax Deal Keeps Bonus Depreciation "Cliff" Compromise Allows 50% Write-off of New Equipment

By Michele Fuetsch, Staff Reporter

This story appears in the Jan. 7 print edition of Transport Topics.

Lost amid the hoopla surrounding Congress' last-minute agreement on avoiding the economic "fiscal cliff" as the new year dawned was a provision in the deal that could help the trucking industry as it moves to replace aging equipment during 2013.

Under the legislation, which President Obama has signed, fleets will be able to continue to write off half of the cost of equipment purchases on their 2013 tax bills. The existing tax relief program expired on Dec. 31.

Relieved truck dealers said renewal of the tax write-offs - known as bonus depreciation - could help boost lagging truck sales.

"We're optimistic that it's going to help," said Dave Thompson, president of TEC Equipment Inc., of Portland, Ore. TEC sells a mix of heavy- and medium-duty trucks.

The old bonus depreciation program had expired Dec. 31, the same day the Senate passed the new bill. The House approved it the next day, Jan. 1.

President Obama signed the new tax measure on Jan. 3, which was the same day the 113th Congress was sworn in, officially making Rep. Bill Shuster (R-Pa.) the new chairman of the House Transportation and Infrastructure committee for the session that will end in January 2015.

Barbara Boxer (D-Calif.) remains chairwoman of the Senate Environment and Public Works Committee, while Jay Rockefeller (D-W.Va.) will stay at the helm of the Senate Commerce Committee.

The legislation, called the American Taxpayer Relief Act of 2012, raises taxes on the wealthiest Americans while keeping tax cuts for most households. It also renewed the $1-a-gallon tax credit for biodiesel producers.

"Under this law . . . companies will continue to see tax credits for the research that they do, the investments they make and the clean energy jobs that they create," President Obama said during a press conference.

Thompson said sales held steady the last two quarters at TEC dealerships in California, Nevada, Oregon and Washington but that "not everybody was prepared to buy" due to the economic uncertainty.

"Now they might," Thompson said. "That depreciation will be a bonus; 100% is better, but 50% is pretty nice."

TEC sells Volvo and Mack Trucks as well as Hino and Isuzu medium-duty trucks and GMC light-duty commercial trucks. It also has truck rental and leasing businesses, so, under the new tax bill, Thompson can also deduct 50% of the purchase price of new trucks he buys for that side of his firm.

Normally, depreciation write-offs are stretched over several tax years as a new asset deteriorates with age.

However, to help the manufacturing sector recover from the recession, a bonus depreciation program was created in 2010. Under it, in the 2011 tax year, equipment buyers could write off 100% of their purchase cost that year.

In 2012, the write-off dropped to 50% of the purchase cost and the program was to expire at the end of that year.

But keeping the 50% write-off is expected to help spur truck sales this year because the tax break "takes some of the sting" out of the higher cost of more fuel-efficient trucks, said Richard Witcher, chairman of American Truck Dealers and CEO of Minuteman Trucks, a light- and medium-duty truck dealership in Walpole, Mass.

"In the last 10 years, we've added, without [counting] federal excise tax, as much as $30,000 to the price of a truck for emissions controls," Witcher said.

Witcher also said increased truck sales in 2013 will boost the economy.

"With every truck that somebody buys, there's a job at a factory someplace [and] there's a job supporting the job at the factory," Witcher said.

At their dealership and service center, bonus depreciation has also allowed Witcher and his brother, Bill, to write off capital investments, such as a $1 million truck-painting facility.

For biodiesel producers, continuation of the $1-a-gallon tax credit is a lifeline. The tax credit helps keep the higher cost of biodiesel fuel competitive with regular diesel, backers of the alternative fuel have said.

"This is not an abstract issue," Anne Steckel, vice president of federal affairs at the National Biodiesel Board, said in a statement. "In the coming months, because of this decision, we'll begin to see real economic impacts with companies expanding production and hiring new employees."

The tax bill makes permanent the income tax cuts approved during the Bush presidency for households with incomes of less than $450,000.

Had Congress not acted, the Bush-era tax cuts would have expired this month for all income levels. At the same time, a series of automatic spending cuts were scheduled to have occurred this month as a result of demands that the federal deficit be reduced.

Hence, the term "fiscal cliff" became a metaphor for what some economists said would be a severe double blow to the economy as both personal and government spending declined.

Although Congress and the president were able to forge a deal on the tax issues, they could not agree on spending reductions, so they put off action on deficit reduction for at least two months.