State Tax Notes (subscription required) reports that Kansas Governor Kathleen Sebelius regrets that the state missed out on $87 million in uncollected corporate income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. by staying in compliance with federal tax law. She believes Kansas’s legislature should have voted to “decouple” from the recent federal stimulus package that permits companies “bonus depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. “—that is, a chance to accelerate the write-off of their assets for tax purposes.
For example, if a company was writing off the value of a large printing press over 20 years, a state that permits bonus depreciationBonus depreciation allows firms to deduct a larger portion of certain “short-lived” investments in new or improved technology, equipment, or buildings in the first year. Allowing businesses to write off more investments partially alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. (like Kansas) will allow the company to move up into the current year a large fraction of the write-off. However, in future years, the write-off will necessarily be smaller.
The idea behind this bonus depreciation is to provide corporations faster access to money for business expansion, reinvestment and the acquisition of new labor—critical to business operations in a fluctuating economy.
Businesses will pay roughly the same amount of taxes over the next few years. The only aspect of state revenue that changes, with respect to bonus depreciation, is the schedule of tax payments over the next few years. The $87 million delay, not loss, of revenue represents approximately .06% of Kansas’ expenditures for 2008. Not to fear, Kansas, your revenue is coming soon.
More on decoupling: http://www.taxfoundation.org/legacy/show/547.html
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