Like many industries, America’s foodservice corporations with private fleets are ordering units at an increased pace. The latest figures from ACT Research, Columbus, Ind., show that orders for Class-8 trucks surged 62% in October compared with activity from the previous month, and up 167% compared to a year ago.
That’s why it’s critical for food manufacturing and distribution organizations to replace their aging equipment, especially since the American economy continues to rely heavily on truck deliveries and commercial drivers. According to the Bureau of Transportation Statistics, Washington, D.C., more than $1 of every $10 produced in the U.S. GDP can be directly tied back to transport activity. Also, The American Trucking Association, Arlington, Va., indicates that trucks contain 70% of America’s freight (by weight).
That being said, foodservice organizations must be cognizant of 2018 tax changes because the way they procure their equipment can have a significant impact to their overall business, bottom line and financial performance.
What are the impending tax changes?
The tax plan proposed by the current administration contains several provisions that will impact equipment acquisition – lower tax rates for businesses, non-deductibility of interest expense for C corporations, limiting like-kind exchanges to real property and expensing of depreciable assets instead of writing them off over years. While it’s hard to say how much of this ultimately gets implemented, the key is to know how these changes may impact a company’s balance sheet, financial plan and tax strategy.
In terms of what is being proposed, the corporate tax rate would be cut to 20%, and a proposal to allow for immediate write-off for equipment. For example, bonus depreciation is doubled to 100% and companies can write off the full amount of qualifying purchases in the same year of acquisition, which is intended to spur investment. In addition, used equipment will qualify for bonus depreciation for the first time. Organizations can continue to deduct the cost of leased assets and the tax benefits inherent in tax-advantaged leases get passed along to the leasee through lower pricing. Leasees will also enjoy lower tax rates that will help them expand the business.
This is particularly critical for foodservice organizations, as echoed by Mark Allen, president and CEO of the International Foodservice Distributors Association (IFDA), Washington, D.C., and chair of the Coalition for Fair Effective Tax Rates. In a recent statement, he addresses that wholesaler-distributors are currently taxed at an effective tax rate of 37%, which is significantly higher than many other industries.
What’s more, the overall foodservice industry will benefit from tax cuts, particularly since retailers pay the largest income tax rates out of every industry in the United States, according to Matthew Shay, president of the National Retail Federation, Washington, D.C., in a Washington Post article.
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**The Tax Cuts and Jobs Act was passed during the publishing of this article and is therefore not cited in the article.