GAMA seeks extension for bonus depreciation

 - January 31, 2007, 11:26 AM

The General Aviation Manufacturers Association has launched a campaign to extend the accelerated-depreciation schedule on new capital equipment–including business aircraft–which it calls a “defining factor” in $2 billion in jet sales. GAMA also wants to increase the period of time between the aircraft purchase date and when it has to be placed in service to qualify for the added tax incentive.

At press time, the association was planning a series of top-level meetings in Washington with congressional leaders and the Bush Administration. An extension of the bonus depreciation could be attached to any one of a number of tax bills that Congress is expected to address early this session.

The first accelerated-depreciation bonus was included in the Job Creation and Worker Assistance Act of 2002 to provide an economic incentive to businesses to purchase new capital equipment. It allowed the buyer to take a “bonus” 30-percent depreciation deduction in the first year in addition to the normal 20 percent. To be eligible for that 30-percent bonus, the aircraft had to be purchased after Sept. 10, 2001, and before Sept. 11, 2004, and placed in service before Jan. 1, 2005.

Last year, GAMA helped lead a successful effort in having the bonus depreciation increased to 50 percent for new aircraft purchased after May 5, 2003, and before Jan. 1, 2005. It was attached to the Jobs and Growth Tax Relief Reconciliation Act of 2003. But it still required that aircraft must be placed in service by Jan. 1, 2005, which is one of the provisions that the general aviation manufacturers would like to see amended.

In the first three months after the bonus depreciation was increased to 50 percent, the general aviation industry saw a 43-percent increase in orders. A recent survey of aircraft purchasers, GAMA said, revealed that the 50-percent bonus depreciation was a deciding factor in a large percentage of those sales.

According to the survey, the 50-percent bonus depreciation has caused 14 percent of the survey participants to buy now rather than later, 5 percent to buy new rather than used aircraft and 3 percent to buy a more expensive aircraft.

Although Congress intended bonus depreciation to remain a powerful incentive for capital purchases through 2004, the realities of the aircraft manufacturing industry will force the bonus-depreciation incentive to end much sooner. That’s because it generally takes business aircraft manufacturers eight to 14 months to fill a customer’s order, depending on the model. Therefore, an aircraft purchased now might not be delivered in time to meet the Jan. 1, 2005 deadline for service entry, therefore disqualifying it for the bonus depreciation.

“Unless the 50-percent bonus-depreciation incentive is extended now, orders for new aircraft are likely to drop off precipitously, particularly this year,” said GAMA. “This will effectively stall the recovery that began with enactment of the incentive this past May.”

The 50-percent bonus depreciation does not increase the total amount of depreciation allowable to companies buying new capital equipment. Rather, it simply “front loads” the deduction. The Joint Committee on Taxation has estimated a revenue impact of a one-year extension at $12 billion over 10 years, according to GAMA. That figure assumes bonus depreciation will stimulate sales of capital equipment by more than $35 billion.

GAMA president Ed Bolen told AIN that extending the accelerated-depreciation incentive will once again be the association’s top legislative priority. Last year, after announcing in February that raising the bonus from 30 percent to 50 percent would be the top legislative priority for that year, GAMA talked to the White House, Congress and general business groups such as the Business Roundtable, the National Association of Manufacturers and U.S. Chamber of Commerce.

Late last month Bolen was planning on escorting Cessna chairman Russ Meyer to meet with Treasury Secretary John Snow; Senate Majority Leader Bill Frist (R-Tenn.); John Castellani, president of the Business Roundtable; House Speaker Dennis Hastert (R-Ill.); and several other members of Congress. “We are going to be spending two days working the issue very hard with Russ in town,” he said.
While GAMA would like to see the depreciation bonus made permanent, it is calling on Congress to extend the bonus depreciation for at least a year and eliminate the placed-in-service window for aircraft. “We’d like to have people buy the aircraft, but have a longer period of time in which to place it into service,” said Bolen. “You would have to buy an airplane before the end of 2005 and then you would place it into service whenever.”

That would give manufacturers the ability to sell the airplanes that are under development and allow bonus depreciation. “That would give us an opportunity to have firmer orders and a clearer view of the future,” said Bolen, “and that would help us in terms of making research-and-development decisions as we go out.”
And, Bolen said, “We will deal with any tax bill that looks like it’s moving as an opportunity to add bonus depreciation.”