DC Velocity - January 2018

to $1 million the size of the so-called Section 179 expense deduction allowing businesses to write off the full amount of equipment investments in the year they are made. The new law also increases to $2.5 million from $2.03 million the spending limits above which companies would be ineligible for the deduction. All companies will be able to fully deduct the cost of equipment purchases the first year the asset is placed into service. The major difference is that the Section 179 language is permanent, while the full depreciation benefits on all equipment purchases expire after five years.

All of the new expensing provisions exclude investments in facilities such as warehouses and distribution centers, which are governed by different and highly complex depreciation schedules.

Pat O’Connor, an attorney for the International Warehouse Logistics Association (IWLA), which represents third-party public warehouse operators, said the new Section 179 spending caps represent a “true small-business tax incentive” because larger businesses that would typically spend above that threshold won’t qualify for the deduction.

Most IWLA members are structured as pass-through entities, and the tax breaks granted to pass-throughs could persuade IWLA members to loosen their purse strings because they will have more capital to plow back into their businesses, said Steve DeHaan, the group’s president and chief executive officer. Most IWLA members already re-invest available capital into their businesses, and the more-favorable tax treatment will give them more reason to do so, especially as customers demand more services from their providers, DeHaan said in an interview after the bill passed Congress.

“I see this as very positive for 3PL employees and leadership,” DeHaan said. IWLA had not yet analyzed the impact of depreciation provisions on its members at press time.

IMPLICATIONS FOR FREIGHT
On the transport side, where asset purchases are the norm,
the ability to expense investments may free companies from
being forced to give tax considerations as much weight in
capital spending as they have in the past. The language
“will give transportation companies much more flexibility
in making capital expenditures, permitting more of a focus
on business reasons for such decisions rather than having to
focus on tax consequences,” said James H. Burnley IV, trans-
portation secretary under President Reagan and for many
years a lawyer in private practice in Washington.
Large truckers may not make immediate use of the law’s
provisions because they are still looking for drivers to fill
the seats of the trucks they have. Benjamin J. Hartford,
transport analyst for investment firm Robert W. Baird &
Co. Inc., said large fleets are more concerned with driver
recruitment and higher freight rates than in leveraging the
law’s benefits to make additional equipment purchases.
Randy Mullett, who runs his own lobbying firm after
years as chief Washington lobbyist for the former truck-
ing and logistics giant Con-way Inc. and
then Greenwich, Conn.-based XPO Logistics
Inc., which acquired Con-way in 2015, said
the law’s expense provisions amount to a
“small-business issue” more suited to inde-
pendent owner-operators and micro fleets
than to large operators. Mullett said, how-
ever, that the language may goose truck
and trailer investment as freight demand
picks up and rates rise. The tax reductions
may also free up capital for more merger
and acquisition activity, he said.

NOT FOR EVERYONE
The tax breaks enshrined in the law are
not to everyone’s liking. Most agree on the
need to reform the complex and outdated
tax code to streamline the filing process for
consumers and allow businesses to more
effectively compete. Yet many object to what they consider
to be $1.5 trillion in budget-busting giveaways to highly
profitable corporations not in need of additional stimulus.
Independent economists question the Trump administra-
tion’s forecasts of the law’s impact on economic growth,
especially by the middle of the next decade when some
business and personal tax benefits expire.

The impact of pouring more fuel on the economic fire will likely be a matter of debate within the material handling sector, which is enjoying a bullish run as the e-commerce boom ignites demand for more and larger warehouses and distribution centers, and the systems and equipment needed to support a radical shift to the omnichannel ful-

16 DC VELOCITY JANUARY 2018 www.dcvelocity.com newsworthy

go figure …

56%

The percentage of warehousing and logistics organizations planning to upgrade their mobile device portfolios to balance customer service requirements with rising labor costs.