[Congressional Record Volume 142, Number 135 (Thursday, September 26, 1996)]
[Extensions of Remarks]
[Page E1710]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             THE COMPUTER SOFTWARE DEPRECIATION CORRECTION

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                            HON. BILL BAKER

                             of california

                    in the house of representatives

                     Wednesday, September 25, 1996

  Mr. BAKER of California. Mr. Speaker, today I am introducing a bill 
to change current tax law to allow computer software acquired in the 
purchase of a business to be subject to the same tax depreciation rules 
as most other computer software available to the general public. My 
bill also shortens the depreciable life of computer software to 2 
years, to better reflect its true value to a small business or a 
corporation.
  Current law considers software acquired in the purchase of a business 
to be an ``intangible asset,'' under Internal Revenue Code section 197. 
As such, it is subject to a punitive 15-year depreciation rule. My bill 
first places all computer software, regardless of its origin, 
composition, or means of acquisition, on equal footing with typical 
off-the-shelf software technology currently available to most 
consumers.
  My bill then lowers the current 36-month ``useful life'' standard for 
computer software deduction down to 2 years. This shorter period is a 
much more fair concept of ``useful life.'' The 2-year deduction is 
weighted in the first year to allow a 70-percent deduction, followed by 
a second-year 30-percent deduction. This also reflects the value of the 
software to a business in a much more fair way.
  Shortening the depreciable life of computer software--and especially 
subjecting the most technical and sophisticated programs to the same 
treatment as commercially available software--will have substantial 
economic impact. It will lower the cost of operation for thousands of 
small businesses which may currently purchase hundreds of programs a 
year. It will also restore a measure of equity for small businesses 
vis-a-vis larger corporations which can afford to write their own 
software and expense the costs that year as a research and development 
expenditure.
  While on the vanguard of our technology sector, computer software has 
an increasingly short product life cycle, often about 1 to 2 years, 
depreciating much more rapidly than most products. My bill will help 
spur further innovation in this growing sector of our economy. And as 
many new companies involved in emerging technology markets must acquire 
new technologies in order to grow, my bill will enhance the 
competitiveness of U.S. firms with foreign firms that may enjoy much 
more favorable tax treatment of acquired assets like software.
  An indepth economic analysis will have to be made on my bill's 
impact, a preliminary examination of the legislation indicates its cost 
will be minimal, compared to its benefit to the technology sector. I 
encourage my colleagues to join me in this effort by cosponsoring this 
important bill.

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