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US trade groups hope for IT depreciation incentive

High-tech trade groups in the US are hopeful that a government economic stimulus package, due today (Tuesday), will include an expanded depreciation bonus that could encourage IT managers to buy hardware and software.

A depreciation bonus allows companies to write off more of a purchase in the year it is made. The US Congress approved a 30% depreciation bonus last year, but industry groups, such as the Information Technology Association of America (ITAA), have urged that it be raised to 50%.

The depreciation bonus applies to any equipment, not just hardware, from the high-tech sector. But hardware, software and services spending declined 5.2% last year after a 5.4% drop in 2001, according to IDC, making depreciation an important issue for tech groups.

The bonus "might prompt a company to upgrade" software or equipment "earlier rather than later", said Bartlett Cleland, an ITAA policy expert. But it would also bring depreciation schedules in line with the real world of rapid upgrades, he said. Depreciations are usually spread out anywhere from three to seven years, sometimes longer then the equipment is even in use.

The 30% depreciation set by Congress remains in effect until September 2004. And, while IT spending is forecast to rise this year, IDC economist Kevin White said the increase has more to do with economic improvements and corporate profits than any tax break.

IDC is expecting a 4.4% increase in US IT spending this year, to $383bn (£238bn). Another research group, Aberdeen Group, has forecast a 4% increase worldwide in IT spending.

Abderdeen chief research officer Peter Kastner said that while the depreciation bonus would not hurt IT purchasing, the two-year window available for taking advantage of the bonus might be prompting some companies to delay purchases until they are certain of economic improvements. Even so, he added, firms are also reaching a point where they can no longer put off upgrades.

Analysts and trade group officials are unsure whether the 30% depreciation bonus has helped IT spending - just yet.

"It's too soon for any of those forecasting numbers to show that," said Caroline Graves Hurley, a policy expert at AeA, formerly the American Electronics Association. "But I do think there has been a sluggish response."

She said the reason for the slow response could be because companies are waiting until the depreciation bonus is closer to expiry before taking advantage of it. There may also be many IT buyers who are unaware of the tax break, she added.

It was uncertain whether President Bush would include an expanded depreciation bonus in the stimulus package, said Ralph Hellman, senior vice-president of government affairs for the Information Technology Industry Council.

Hellman was, nonetheless, hopeful that a bonus would appear in the legislation and said a number of bills seeking anything from a 50% bonus to 100% bonus are in the works.

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