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How Tax Changes Will Affect New Equipment Strategy and Procurement

How Tax Changes Will Affect New Equipment Strategy and Procurement

That’s an important question right now and one with an exciting answer.  Businesses have been investing in equipment upgrades over the past year at a rapid pace and that trend is set to continue into the foreseeable future.

With significant changes to the tax code, corporations are set to parlay savings into necessities like expanded and upgraded truck fleets.  For example, Class-8 truck purchases exploded last October, increasing by 62%.  Large companies like Costco are buying them at a rate which has increased 167% from the same time last year.

The passage of The Tax Cuts and Jobs Act of 2017 is projected to save manufacturing companies alone $261 billion.  The Equipment Leasing and Finance Association reports that procurement of items like software and other equipment is slated to rise by over 9% – more than twice 2017’s purchasing figures.

Overall, investments like these are projected to represent economic growth of 2.7% over the coming year, as sectors like medical, construction and transportation upgrade existing resources.

The TCJA and leasing.

The TCJA has effectively reduced the corporate tax rate to 21%.  But there’s an off-the-top write off for equipment purchases.  C corporations my now expense depreciated assets, which is a significant change.  The Act also permits qualifying acquisitions to be written off in the same year they’re obtained, as a means of spurring investment.

Leasing wins over taking out a loan for new equipment, with The Act seeing those with Operating Leases enjoying a lower cost than they would for a loan or even a cash purchase.  Operating Leases reflect the current value as the amount of the asset, keeping it partially off the balance sheet.

Cash flow is also improved by the additional savings from ROA (Return on Assets), ROIC (Return on Invested Capital) and ROCE (Return on Capital Employed).  With flexible financing, long-term payment, and upgrades or add-ons to equipment, the bottom line is bolstered.

All these factors represent an enormous benefit, including the ability to remain ahead of the curve on technology and harmonizing acquisition strategy with the needs of the business.

Procurement strategy matters.

With the advent of the TCJA, a closely monitored acquisition strategy is needed.  In the transportation sector, more organizations than ever are leasing vehicles.  Abbreviating the asset management cycle has a huge impact on outlay.  Also, leasing represents reduced risk and lower costs for fuel, repair and maintenance and disposal.

Understanding the differences inherent in the type of lease (operating against capital) is a big step toward enhanced financial performance.

Procurement made easy.

Corporations all over the USA are excited to take advantage of the TCJA and the opportunities for expansion it represents.  With the CenterPoint Group, you’ll have access to focused knowledge about procurement and the power of numbers, too.

We’re a trusted procurement advisor that leverages $850 million in collective indirect spend for our members, which lowers your business costs on everyday purchases.

Our global agreements cover North America and Europe, opening the door to superlative savings.  Contact us for more information.

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