Corporate Tax Bill to Present Opportunities, Pitfalls

The House and Senate has passed a bill that would dole out huge corporate tax breaks for manufacturers in exchange for repealing a double-edged export subsidy. President George W. Bush is expected to sign the bill, dubbed the “American Jobs Creation Act of 2004.”

The new bill would eliminate a controversial trade subsidy designed to aid U.S. exporters, but was deemed illegal by the World Trade Organization. As a result, the European Union (EU) started imposing tariffs on American goods.

The bill provides a bevy of tax breaks, valued at $100 billion, for manufacturers and exporters, the The Wall Street Journal said.

“Small trucking companies will benefit from a two-year extension of expanded expensing, or immediate deduction, for investments in new equipment,” said Ken Simonson, chief economist for the Associated General Contractors of America and Fleet Owner columnist.

“In 2003, Congress temporarily raised the limit on the amount of equipment that small businesses could expense from $25,000 per year to $100,000…The higher limits applied only in 2003 through 2005. Now, Congress has (with the new bill) extended the deadline to the end of 2007,” Simonson said.

The bill would also provide tax credit for “biodiesel” and “agri-biodiesel” fuels, which could make these substitutes for diesel fuel more affordable, Simonson noted.

The bill would also eliminate quarterly payment options for the Highway Vehicle Use Tax (HVUT) to clamp down on tax evasion, the American Trucking Assns. (ATA) said. Instead the tax would be paid in one yearly lump sum. It also includes an HVUT credit for a tax-paid vehicle that is sold during the tax year, ATA said.

About $4 billion a year would be gleaned from new measures designed to eliminate fuel tax evasion to compensate the Highway Trust Fund, ATA said.

Other changes in the bill add a “mobile machinery exemption” to the tax code, which keeps an exemption from a 12% tax on equipment such as concrete pumpers, mobile cranes, logging and oilfield equipment, Simonson said. The exemption applies only if the equipment travels 7,500 mi. per year or less, and owners will have to pay a fuel tax, he added.

Vehicles that are registered in Canada or Mexico would no longer receive a 25% tax reduction, and tire tax would be assessed based on the tire’s load rating, rather than its weight.

“Although most of the changes are not dramatic, they may present opportunities—or pitfalls,” Simonson said “Get with your tax advisor pronto to be sure you understand the implications for your business, because some of the provisions take effect by January 1, 2005, or may be in effect already.”

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