A brighter horizon with tax clouds in the way

After returning from the Woodworking Industry Conference in May, where the industry’s key decision makers gather every two years to talk business and attend association meetings, I was left with one distinct impression: these folks are genuinely enthused about the prospects of 2013 and beyond. See ya, great and formidable recession. It’s time to invest and prosper.

But before the party got carried away John Satagaj, a consultant for the Wood Machinery Manufacturers of America, raised several important issues during a public policy forum. There are many unresolved issues on the horizon, he says, from the expiration of the temporary direct expensing allowance increase to corporate tax rates to possible regulatory initiatives such as combustible dust regulation to health care reform.

Satagaj was referring to Section 179 of the Internal Revenue Code that allows a business to deduct, for the current tax year, the full purchase price of financed or leased equipment and off-the-shelf software that qualifies for the deduction. The Section 179 limit for tax years 2010 through 2013 is $500,000 and the phase-out threshold in those years is $2 million. Absent further legislation, these amounts drop to $25,000 and $200,000, respectively, in tax years beginning in 2014.

And that would be bad.

On the flip side, there’s the Manufacturing Reinvestment Account Act, introduced by Rep. Rosa DeLauro, D-Conn., in April to allow manufacturers to reinvest in machinery, facilities and job training through a Manufacturing Reinvestment Account.”

“The MRA is like an IRA for manufacturers,” says Jamison Scott, owner of Air Handling Systems in Woodbridge, Conn. “It allows manufacturers to make annual pretax contributions of up to $500,000 for seven years and use the funds to reinvest in their businesses.”

The idea originated with members of the New Haven Manufacturers Association and this marks the third time the bill has been introduced. “We started working with Rosa in 2009 and we knew it would take several cycles for something to happen,” Scott says. “There is definitely more interest right now in Washington, D.C., so the timing is really good.”

Woodworking companies, which are mostly S corporations, would certainly benefit. If a company contributed $500,000 annually to an MRA account earning 5 percent interest, it would have approximately $3.6 million to reinvest after seven years, with a 15 percent tax rate on amounts distributed from the MRA.

Maybe the third time is the charm.

WIC also turned into a tear-jerker when Oregon shop teacher Dean Mattson accepted the Educator of the Year award from the Woodworking Machinery Industry Association. The lead instructor at North Salem High School gave an impassioned speech on helping students from disadvantaged backgrounds and resurrecting a failing program. He left the podium to a standing ovation. Mattson’s program is thought to be the largest in the U.S. and next year will double in size to 950 students.

This article originally appeared in the June 2013 issue.