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Book part
Publication date: 4 December 2012

Terrance Jalbert and Gary M. Fleischman

This paper examines the optimal use of tax incentives relating to the Hawaii sales, use and excise tax. While many states offer exemptions to these taxes, Hawaii is the…

Abstract

This paper examines the optimal use of tax incentives relating to the Hawaii sales, use and excise tax. While many states offer exemptions to these taxes, Hawaii is the only known state that ties its excise tax credit to the depreciation method used on the state income tax return. Therefore, the purpose of this study is to use the Hawaii business tax context to illustrate the complex trade-offs and year-by-year analyses that small businesses often must employ in the presence of shifting federal tax policy that indirectly influences state tax structures because of tax coupling. Federal and Hawaii taxpayers can elect to expense depreciable property using the 179 expensing provision or to depreciate using the modified accelerated cost recovery system (MACRS). We develop a model that will help non-corporate small businesses in Hawaii determine their optimal tax cost recovery strategy: (1) Utilize Hawaii Section 179 immediate expensing on purchases of tangible personal property, or alternatively (2) Employ MACRS depreciation on these purchases combined with the Hawaii Capital Goods Excise Credit. Our modeling separately considers the possibility that the proprietor jointly makes the federal and Hawaii cost recovery decision, as well as the alternative possibility that these cost recovery decisions are made independently.

The study illustrates that the interaction of federal and state law differences exacerbated by frequent tax changes may cause significant tax compliance complexity and resulting confusion for small non-corporate business taxpayers who are generally not equipped to wrestle with such issues. From a policy perspective, states may wish to minimize complexity using coupling efforts with federal law or otherwise routinely revisit outdated state tax statutes that indirectly cause unintended tax consequences. States must be cognizant, however, that their own budget constraints may worsen if they fully couple with recent generous federal Section 179 expensing limits.

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Article
Publication date: 4 July 2016

James M Williamson and Sarah Stutzman

– The purpose of this paper is to estimate the impact of Internal Revenue Code cost recovery provisions – Section 179 and “bonus depreciation” – on farm capital investment.

Abstract

Purpose

The purpose of this paper is to estimate the impact of Internal Revenue Code cost recovery provisions – Section 179 and “bonus depreciation” – on farm capital investment.

Design/methodology/approach

The authors construct a synthetic panel of data consisting of cohorts of similar farms based on state and production specialization using the USDA’s Agricultural Resource Management Survey for years 1996-2012. Employing panel data methods, the authors are able to control for time-invariant fixed effects, as well as the effects of past investment on current investment.

Findings

The authors estimate statistically significant investment demand elasticities with respect to the Section 179 expensing deduction of between 0.28 and 0.50. A change in bonus depreciation, on average, had little impact on capital investment.

Practical implications

The estimates suggest there is a modest effect of the cost recovery provisions on investment overall, but a stronger effect on farms that have more than $10,000 in gross cash farm income. There are other implications for the agricultural sector: the provisions may encourage technology adoption with its associated benefits, such as reduced cost of production and improved conservation practices. On the other hand, the policy could contribute to the growing concentration in production as large commercial farms expand their operated acreage to take advantage of increasingly efficient physical capital.

Originality/value

To the authors’ knowledge, this is the first research to use a nationally representative dataset to estimate to impact of Section 179 and “bonus depreciation” on farm investment. The findings provide evidence of the provisions’ impact on farm capital purchases.

Details

Agricultural Finance Review, vol. 76 no. 2
Type: Research Article
ISSN: 0002-1466

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Book part
Publication date: 5 October 2020

Malcolm A. Mueller, Frances A. Stott and Aaron B. Wilson

The purpose of this case is to allow students the opportunity to examine how the recent changes to depreciation incentives in the Tax Cuts and Jobs Act of 2017 (P.L…

Abstract

The purpose of this case is to allow students the opportunity to examine how the recent changes to depreciation incentives in the Tax Cuts and Jobs Act of 2017 (P.L. 115-97, Dec. 22, 2017) may affect the purchase of capital assets. Bonus depreciation has been extended to allow an immediate 100% deduction for eligible property, which also now includes used property. This bonus depreciation will be phased out over a nine-year period. Additionally, the progressive marginal tax rate used for business income has been eliminated and replaced by a flat 21% tax rate, representing a 14% drop in the tax rate on businesses.

Specifically, this case will examine how a change from 50% to 100% bonus depreciation affects purchasing decisions between asset classes, due to the exaggerated impact on the net present value for longer lived assets. In keeping with the evolution of accounting in academia, students will be asked both to solve a realistic problem and to communicate their investment decisions effectively. To prepare students for the assignment, the informational building blocks are presented in modules following Bloom’s taxonomy – culminating in the application of the concepts in a decision-making scenario. The learning method applied in this case has been tested in the classroom, with quantifiable results showing a positive learning outcome. Pre- and post-case assessment questions were administered with significant improvement in students reported understanding across all six measures. Based on these results, this case achieves the dual goals of teaching students how to apply the concept of bonus depreciation to maximize value and how to communicate this information effectively.

Details

Advances in Accounting Education: Teaching and Curriculum Innovations
Type: Book
ISBN: 978-1-83867-236-2

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Article
Publication date: 1 June 2012

Javier Portillo and Walter E. Block

The purpose of this paper is to criticize the current US tax system and explain in what ways taxation harms the economy. Taxes are coercive. Taxpayers are forced to pay…

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Abstract

Purpose

The purpose of this paper is to criticize the current US tax system and explain in what ways taxation harms the economy. Taxes are coercive. Taxpayers are forced to pay individual income taxes. If the taxpayer refuses, several adverse consequences will unfold against him even including jail‐time. Taxes diminish taxpayer's disposable income and leave consumer's wants unattended. The money they could have used to fulfil their wants goes instead to the government in the form of taxes.

Design/methodology/approach

Taxation is analyzed from an economic point of view.

Findings

Progressive taxation is harmful to the economy because it punishes successful individuals. The more they earn (a reflection of the productive value they bring to the market), the more they have to pay. Meanwhile less productive citizens paying little or no tax are receiving “benefits” derived from the investment of more successful taxpayers. These are inefficient since they reduce incentives. Taking money from Peter and giving it to Paul decreases the incentive, both have to earn an income and be productive. Finally, the paper exposes the influence government has over taxpayer's decisions.

Originality/value

We live at a time in the US when President Obama is calling for greater taxation for the rich, and the Republicans are rejecting this initiative on the ground that it is “class war.” A study of taxation at this point cannot help but shed light on this controversy.

Details

Studies in Economics and Finance, vol. 29 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 4 November 2013

Joleen C. Hadrich, Ryan Larsen and Frayne E. Olson

The purposes of this paper are to determine the financial, structural, and tax policy factors that influence the probability of buying machinery and the intensity of the…

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352

Abstract

Purpose

The purposes of this paper are to determine the financial, structural, and tax policy factors that influence the probability of buying machinery and the intensity of the machinery purchases on North Dakota farming operations.

Design/methodology/approach

A double hurdle model was used to estimate the two decisions: purchasing machinery and the intensity of the machinery purchase. Data were collected from the North Dakota Farm and Ranch Management Business Association Annual Summaries for 1993-2011.

Findings

Results demonstrated that the tax incentive provided by Section 179 deduction had the largest positive effect on machinery purchases when compared to operating profit margin, leverage ratio, producer type, and experience of the principal operator of the farm.

Originality/value

Section 179 deductions have changed substantially over the 19-year period studied and have not been analyzed in previous machinery investment work. This analysis puts a numerical value on the effect of Section 179 deductions over time and demonstrates the large effect tax incentives have on machinery purchase decisions and levels.

Details

Agricultural Finance Review, vol. 73 no. 3
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 18 April 2018

Leonard Polzin, Christopher A. Wolf and J. Roy Black

The purpose of this paper is to examine the use of accelerated depreciation deductions, which includes Section 179 and bonus depreciation, taken in the first year of asset…

Abstract

Purpose

The purpose of this paper is to examine the use of accelerated depreciation deductions, which includes Section 179 and bonus depreciation, taken in the first year of asset life by Michigan farms. The frequency, value and influence of accelerated depreciation on farm investment are also analyzed.

Design/methodology/approach

Accrual adjusted income statements, balance sheets, depreciation schedules, and income tax information for 66 Michigan farms from 2004 to 2014 provide data for the analysis. The present value of the accelerated deduction and change in the cost of capital were calculated. Finally, investment elasticities were used to arrive at the change in investment due to accelerated depreciation.

Findings

Accelerated depreciation was utilized across all applicable asset classes. Section 179 was used more often than bonus depreciation in part because it was available in all the examined years. Based on actual farm business use, accelerated depreciation lowered the cost of capital for the operations resulting in an estimated increase in investment of 0.27 to 11.6 percent depending on asset class.

Originality/value

The data utilized are of a detail not available in previous investigations which used either aggregate data or estimated rather than the observed use of accelerated depreciation. This analysis reveals that accelerated depreciation as used by commercial farms lowers the cost of capital and thus encourages investment particularly in machinery and equipment.

Details

Agricultural Finance Review, vol. 78 no. 3
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 27 July 2012

Paul N. Ellinger, Bruce L. Ahrendsen and Charles B. Moss

The purpose of this research is to analyze possible implications of the economic measures presented in the balance sheet and income statement of the farm firm.

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1745

Abstract

Purpose

The purpose of this research is to analyze possible implications of the economic measures presented in the balance sheet and income statement of the farm firm.

Design/methodology/approach

Accounting principles and the users of accounting information are studied. From a review of the Agricultural Resource Management Survey (ARMS) questionnaire, several items are identified that limit ARMS information from fully measuring economic and financial conditions.

Findings

ARMS limitations include issues related to asset valuation, income and expense recognition, and extraordinary income reporting. In particular, data limitations on deferred taxes associated with market values exceeding cost, capital leases, prepaid rents, accrued items, Section 179 and accelerated depreciation methods, and extraordinary items may result in understatement of leverage, overstatement of liquidity, and under reporting of year‐to‐year farm income variability measures.

Originality/value

By identifying these limitations, changes can be made that may result in improved measures of farm financial condition and farm household well‐being.

Details

Agricultural Finance Review, vol. 72 no. 2
Type: Research Article
ISSN: 0002-1466

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Book part
Publication date: 18 September 2017

Carol MacPhail, Riza Emekter and Benjamas Jirasakuldech

Bonus depreciation was enacted by the United States Congress and signed into law in 2002 largely in response to the economic malaise that engulfed the U.S. economy after…

Abstract

Bonus depreciation was enacted by the United States Congress and signed into law in 2002 largely in response to the economic malaise that engulfed the U.S. economy after the September 11, 2001 terrorist attacks. We investigate whether bonus depreciation, a capital asset expensing allowance under the U.S. federal income tax code, impacts the level of business investment in property, plant, and equipment in the time periods that followed 9-11 in comparison to other earlier time periods. Based on the empirical evidence, the bonus depreciation policy has a positive effect on capital expenditures only in the period in which this policy was legislatively anticipated, specifically the period spanning the last quarter of 2001 and the first quarter of 2002. Otherwise, we find no significant increase in capital expenditures during the period that this special depreciation provision policy is initially in place from 2002 to 2005. Although bonus depreciation is re-enacted in response to the fiscal distress and recession that began in 2007, capital expenditures actually decline during the recovery era, a period following the post-2008 subprime mortgage crisis. Though Congress continues to temporarily re-enact bonus depreciation on an annual basis through December 31, 2014, there is no strong evidence that capital investment is positively impacted. Instead, the empirical results show that factors that positively affect the level of companies’ capital expenditures include capital intensity, cost of capital, amount of cash holdings, changes in sales and loans. Our empirical results invite the question of Congress’ intended goal in re-instating bonus depreciation for 2015 through 2019.

Details

Advances in Taxation
Type: Book
ISBN: 978-1-78714-524-5

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Article
Publication date: 14 May 2019

Elizabeth Toomey

On 12 November 2018, New Zealand's Land Transfer Act 2017 came into force. The purpose of this paper is to pinpoint some of the significant changes in the Act that…

Abstract

Purpose

On 12 November 2018, New Zealand's Land Transfer Act 2017 came into force. The purpose of this paper is to pinpoint some of the significant changes in the Act that challenge the fundamental concepts of the Torrens system of registration.

Design/methodology/approach

The paper addresses three significant reforms: a definition of land transfer fraud; the concept of immediate indefeasibility with limited judicial discretion and its impact on volunteers and the Gibbs v. Messer anomaly; and the compensation regime. Case studies illustrate the effect of these changes.

Findings

The limited legislative definition of fraud reflects the common law and allows for any necessary flexibility. The new Act reiterates the principle of immediate indefeasibility but qualifies it with the introduction of some judicial discretion. This is a novel concept for the courts and will undoubtedly be dealt with cautiously. The author voices some disquiet with regard to some of the guidelines set out in s 55(4) of the Act. The compensation provisions introduce an element of an owner's culpability. An owner now runs the risk of reduced compensation if there has been a lack of proper care.

Research limitations/implications

The implications of this research are fundamental for New Zealand's land transfer system.

Practical implications

The limited judicial discretion will challenge the courts of New Zealand. The new compensation provisions will ensure that an owner's carelessness will be accountable.

Originality/value

This study is one of the first to analyse the Land Transfer Act 2017 (New Zealand). Its value extends beyond New Zealand shores as it has implications for global land transfer systems.

Details

Journal of Property, Planning and Environmental Law, vol. 11 no. 2
Type: Research Article
ISSN: 2514-9407

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Article
Publication date: 14 April 2014

Don Bruce, John Deskins and Tami Gurley-Calvez

When a small business purchases a capital asset, its cost for tax purposes is spread over the useful life of the asset through the process of depreciation. It has become…

Abstract

Purpose

When a small business purchases a capital asset, its cost for tax purposes is spread over the useful life of the asset through the process of depreciation. It has become common in the USA for policy makers to enhance depreciation rules in an effort to increase business investment in a less-costly manner than across-the-board marginal tax rate cuts. Indeed, short-term depreciation policies are often billed by policy makers as a way to save America's small businesses. However, little is known about the actual effects of depreciation policies on small business activity. This paper aims to discuss these issues.

Design/methodology/approach

In this initial attempt to test the political claims regarding the importance of depreciation rules, the paper uses a 12-year panel of tax returns for Schedule C sole proprietors to empirically examine whether more generous depreciation policies influence small business activity at the extensive margin. Specifically, the paper estimates a series of multivariate models to explain sole proprietors’ decisions to remain in business as functions of their financial, demographic, and tax situations, including measures of the present discounted value (PDV) of a stream of tax deductions for depreciated capital under various rule structures.

Findings

Throughout the analysis, the authors are unable to find evidence that favorable depreciation rules lead to greater rates of entrepreneurial longevity among Schedule C sole proprietors.

Originality/value

Discrete choice results suggest that increases in the PDV of tax reductions from depreciation (e.g. depreciating the value earlier in the recovery period) might actually lead to higher probabilities of small business exit, while survival analysis finds no clear influence of depreciation on spells of small business activity.

Details

Journal of Entrepreneurship and Public Policy, vol. 3 no. 1
Type: Research Article
ISSN: 2045-2101

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