What Is Going On In Washington?Written By: Walter Berry
Article Date: 10-03-2005
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.
Because we combine our efforts, we have a powerful voice in Washington.
I am sitting at my desk pondering what I should write about this month. It occurs to me that if I write about our new national highway program, SAFETEA, I won't have so much to write because explaining what SAFETEA stands for would take up about half of the article. The truth is there is always something going on in Washington, D.C. For some, that may be welcome news, while for others, it is a source of concern. The following are just a few of the issues on the table now:
For our operation, I'm not sure we know the answer to any of these benchmarks at the time we start renting a piece of equipment.
- In August, President Bush signed a new highway bill. It's called the Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005 (there I got it in!). It authorizes spending starting in October of 2003 (not really, we have had temporary funding bills passed since then).
Approval of the bill is good news in that the uncertainty of highway funding is now addressed and the rental preference that had been in the Senate version for sometime was removed. It probably does have too many "pork barrel" projects in it that Congressmen and Senators wanted for their specific constituents, but overall this bill will be very good for our industry.
- There's also talk in Washington of addressing the Death Tax. The current law raises exemptions annually until 2010, when there is no tax, then in 2011 we revert to the old law. What that means is that 2010 is the best year to plan an involuntary estate transfer.
A majority of Senators would like to eliminate the Death Tax permanently, but will there be enough (60 percent) to actually get the thing to a vote?
So now there is talk of raising the estate exemption to $5 million and $10 million and using the capital gains tax rate on any excess. This compromise is not perfect, but it is no doubt better than the current law. Since our industry is dominated by family owned businesses, resolving how estates are treated for tax purposes will affect us long into the future.
- A new topic that just surfaced in late July concerns the Internal Revenue Service. The IRS has recently raised questions concerning the ability to depreciate, for tax purposes, inventory that is being rented while at the same time it is available for sale. They call this dual-purpose property.
The IRS's contention is that inventory held for sale cannot be depreciated, unless it is held primarily for lease. The dealer must prove the equipment is primarily held for lease. According to the IRS's proposed new rules, a rental fleet could not be depreciated unless its value declines more than 50 percent during the rental period, the aggregate gross lease income exceeds the gross sale income, or the aggregate lease period exceeds 50 percent of the economic life of the property.
AED's Washington office, with the assistance of dealers, manufacturers and other trade groups, is drafting a response. It is our intention to educate the IRS on the economics of our industry, as well as to illustrate that this proposal is not consistent with their own technical advice memoranda or past Tax Court rulings. Again, the outcome of this issue has major impact on our businesses.
Fortunately, our industry has a trade association that allows us to draw upon our common interests when issues arise. Because we combine our efforts, we have a powerful voice in Washington. This benefit is just one of many that AED provides. I might be biased, but I am certainly pleased with the value our company receives from our trade association.
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