WASHINGTON-Rep. Phil Crane (R-Ill.) is expected shortly to introduce legislation to reduce the depreciation life of wireless network equipment, one of various tax code changes Congress is considering for the New Economy.
A Crane spokesman said the bill, which would reclassify wireless telecom equipment and reduce depreciation life from 10 years to five years, will be unveiled before Congress adjourns this month.
Making the case for the wireless industry at last Tuesday’s House Ways and Means subcommittee hearing was Molly Feldman, vice president for tax policy at Verizon Wireless. A Wireless Depreciation Coalition was formed to lobby Congress for the kind of tax change that will be offered by Crane.
“In addition to imposing higher capital costs, the lack of clarity in the depreciation rules for cell site equipment places wireless companies at a significant risk of incurring penalties and interest as a result of depreciation audit adjustments,” said Feldman in written testimony submitted to last Tuesday’s hearing by the House Ways and Means oversight panel.
“This is particularly troublesome given the industry’s merger and acquisition activity,” added Feldman. “Acquiring companies are finding that some acquired companies may have significant exposure on audits as a result of depreciation elections made in past years.”
Today, wireless network equipment is classified for cost recovery purposes into wireline transmission classes. The wireless industry argues its equipment should be categorized within the definition of “qualified technological equipment,” given the fact that major components of mobile-phone networks are computers or are indirectly controlled by computers.
“We shouldn’t wait for an economic downturn to take a look at current rules,” said Amo Houghton (R-N.Y.), chairman of the House Ways and Means oversight subcommittee.
Houghton, an ex-businessman with a graduate business degree from Harvard University, added, “The New Economy uses high-tech equipment, so we need to look at cost recovery rules for physical capital.”
But lawmakers are not limiting their review of the tax code to high-tech gear.
The House Ways and Means Committee also is re-examining the tax treatment of intangible capital and how the tax code treats investment in human capital, which in the New Economy is dominated by highly skilled workers.
On a related front, Cellular Telecommunications Industry Association President Thomas Wheeler last week said progress was made in persuading the Internal Revenue Service to shorten the period-to one year-for expensing the cost of obtaining wireless subscribers. Despite making inroads, Wheeler said he expected the IRS will deal with the issue on a case-by-case basis.
In contrast to efforts to get the 3-percent federal telecom tax repealed, the wireless industry has taken a low-key approach to lobbying policy-makers on equipment and marketing tax matters.
Congress has come close several times to overturning the century-old telecom tax, only to see the measure sidetracked for a variety of reasons. Nevertheless, lawmakers are expected to kill the tax before leaving for this fall’s elections.
