Executives say it will take time to sort out the wide-ranging law’s implications.
What Orange County companies will benefit from the sweeping corporate tax cut that President George W. Bush signed into law Friday?
An easier question to answer might be: What O.C. companies won’t benefit?
The $136 billion, 625-page law contains so many provisions – for manufacturers, restaurant operators, film companies, and mom and pop firms – that it’s likely to have tax implications for almost every business in the county.
“It’s very far-reaching and broad,” said Peter Dolbee, a partner and corporate tax specialist at Haskell & White, a certified public accounting firm in Irvine.
The law – The American Jobs Creation Act of 2004 – was sold as a way to stanch the bleeding of the U.S. manufacturing sector, which faces tough competition from rivals in emerging low-cost economies around the globe.
Over the past four years, U.S. goods producers have shed 2.7 million jobs – 346,000 of them in California and 35,000 of them in Orange County.
Julie Puentes, a top official at the Orange County Business Council, said, “The loss has had a detrimental effect on the overall economy.” The reason? Jobs in the sector tend to stimulate economic activity more than, say, jobs in lower-paying sectors like leisure and hospitality.
Local manufacturers – especially those with sales overseas like Edwards Lifesciences of Irvine – stand to gain in at least two ways from the law.
It provides what amounts to a 3 percent rate tax cut for all “domestic manufacturers” when it’s fully phased in.
But it also includes provisions that allow companies with overseas operations to carry foreign tax credits on their books for 10 years instead of five and encourages companies to repatriate foreign earnings by temporarily cutting the tax rate on such income to 5.25 percent.
“Will we benefit?” said Barry Liden, a spokesman for Edwards, which manufactures artificial heart valves that are sold in the United States, Europe and Japan. “The bottom line is, we think there may be some benefit to it, but we have to do some pretty thorough analysis of the impact on our company.”
But Dolbee says the new law defines “domestic manufacturing” so broadly that everyone from filmmakers to record producers, builders and architects will get relief.
The law also accelerates the depreciation of restaurant and leasehold improvements from 39 to 15 years and permits small businesses to deduct up to $100,000 a year for investments they make to buy machinery and equipment.
“It’s going to take a long time for professionals to distill this down,” Dolbee said. One local company that has done a quick analysis of the new law and says it won’t benefit from it is Fluor, the Aliso Viejo-based engineering giant.
The reason?
Fluor does much of its building overseas and isn’t covered by the domestic construction tax cuts. What’s more, the benefit it gets from the tax cut on foreign earnings appears to be offset by other provisions.
“Based on a preliminary look, we don’t anticipate any significant impact to us,” said Jerry Holloway, a Fluor spokesman. “When they sit down and do the real numbers, if that changes, we’ll report that as part of financial disclosures.”