Tax Deal Could Benefit Telecom, Groups Say

TIA is concerned that the package didn’t go through, but hopefully lines of communications are open, the trade group’s president Grant Seiffert told us. The association is pleased that an R&D tax credit extension -- which Seiffert called critical for competiveness, innovation and job creation -- is included in the package, he said. A permanent incentive would offer the best opportunity to give companies long-term abilities to invest in technology, Seiffert said. Overall, this package is a strong step toward greater certainty, he said. CTIA appreciates that the proposal includes several measures -- extensions of bonus depreciation, the rate on dividend taxation and the R&D tax credit -- important to wireless, President Steve Largent said. The group urged enactment of the provisions this year.

The proposal would benefit dividend-paying companies, many of which provide predictable income that attracts investments from retirement plans and pension funds, said USTelecom spokeswoman Anne Veigle. Overall, the proposal would help encourage broadband investment through provisions for accelerated depreciation, expensing of capital expenditures, extension of the R&D tax credit and continuation of the preferential treatment of dividends, she said. Companies like the Bells and midsize telcos pay high dividends, Stifel Nicolaus analysts had said.

The extension of the R&D tax credit is nearly a full year overdue and would allow technology companies to commit to new and expanded innovation programs, TechAmerica said, urging passage of the package this year. A permanent, strengthened incentive remains badly needed if the U.S. is to improve its standing for R&D incentives offered by global competitors, said the trade group representing U.S. IT companies. Allowing businesses to write off investments next year provides a strong, short-term incentive that will bolster the recovery, the group said. Now is the worst time to raise any taxes, particularly those on small business owners, it said.

The tax proposal is directed mainly at individuals rather than corporate taxpayers, said tax consultant Bob Willens. But one proposal that should help telecom and cable companies more than other companies is one to allow expensing of the cost of certain property bought and placed in service in 2011, he said. He expects the proposal to permit full expensing of the cost of depreciable tangible personal property and software as long as the property is both purchased and placed in service in 2011, Willens said. Telecom companies are capital-intensive and large consumers of the types of property eligible for the expensing benefit, he said. That means the return on investment on equipment will increase, so these companies should increase their capital investment, he said.

A provision that could affect media companies is the provision that preserves the lower tax rate on dividend income, Willens said. Qualified dividend income will be taxed at a rate not exceeding 15 percent in 2011 and 2012. Many media companies have large “insider” ownership profiles and therefore these companies might be inclined to pay special dividends to their shareholders, Willens said. He noted that there’s nothing in the package targeting overseas profits, nor is there a provision that would allow U.S. multinational companies to repatriate overseas profits at favorable tax rates.