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Modernizing Depreciation
By John Satagaj, email@jsatlaw.com
 Senators John Kerry (D-MA), chairman of the Small Business Committee, and Gordon Smith (R-OR) have introduced S. 1197, the “Tax Depreciation, Modernization, and Simplification Act of 2007.” The legislation touches on a subject near and dear to our hearts, updating our depreciation system so that it can keep pace with new technology. The legislation makes four changes to the current depreciation system.
First, the legislation creates a process that provides the Department of Treasury with the authority to modernize class lives. The purpose of this provision is to provide Treasury with a mechanism to modify class lives that reasonably reflect the anticipated useful life and the anticipated decline in value over time of the property to the industry, and take into account when the property becomes technologically or functionally obsolete to perform its original purpose. Treasury will also have the authority to modify class lives in order to more accurately reflect economic depreciation. As Senator Kerry has observed, “For example, a personal computer has a depreciable life of five years, but it has an economic life of only 2 to 3 years. Even though a computer can be used for five years, it becomes economically obsolete after a couple of years because of the newer, faster, and more advanced computers on the market.”
Senator Kerry also notes, “Our depreciation system has not been adequately updated since Congress revoked Treasury's rule making authority in 1988. Several industries were not even contemplated when class lives were assigned in 1981, and some class lives even date back to 1962. When the Modified Accelerated Cost Recovery System (MACRS) was enacted in 1986, Congress directed Treasury to establish an office to monitor and analyze the actual experience with class lives and to modify class lives if the new class life reasonably reflected the anticipated useful life and the anticipated decline in value over time of the property to the industry. The authority was then revoked because Congress did not agree with all of the decisions made by Treasury. The authority provided in this legislation addresses this previous problem by requiring Treasury to consult with Congress 60 days prior to publishing any proposed regulations. In addition, the Congressional Review Act would apply to any regulation proposed by Treasury and each class life prescribed by Treasury would be considered a separate rule.”
Second, the legislation would eliminate the mid-quarter convention. The placed-in-service conventions determine the point in time during the year that the property is considered “placed in service” and this determines when depreciation for an asset begins or ends. Under current law, there are the half-year, mid-month, and mid-quarter conventions. The mid-quarter convention is a source of complexity because it requires an analysis of the depreciable basis of property placed in service during the last three months of any taxable year. The calculation of the mid-quarter convention is burdensome, and it requires taxpayers to wait until after the end of the taxable year to determine whether the proper placed-in-service convention was used to calculate depreciation for assets during the taxable year.
Third, the legislation would allow taxpayers to elect to use mass asset accounting for assets with a cost of less than $10,000. Generally, taxpayers calculate depreciation on an item-by-item basis. The bill would allow taxpayers to elect to use mass asset accounting for all assets with the same recovery period. This provision will help simplify the recordkeeping associated with depreciation.
Fourth, the legislation would permanently extend increased expensing for small businesses. However, the minimum wage bill, passed by Congress and signed by the President, include increases that go beyond the Kerry/Smith bill.
In the past, WMMA has supported different legislation to modernize the depreciation schedules. The centerpiece of that prior effort was “high productivity” assets. This legislation takes a broader approach but hopefully would achieve some of the same results in speeding up depreciation schedules. The catch, however, is that as a tax relief measure, it will have a “revenue lost” price tag and that means it would be subject to “pay-go” rules. As a result, revenue offsets would have to be found. Still it is a relatively modest endeavor, it is bi-partisan and it might be more palatable to fiscally prudent members of Congress. You might want to add it to your “wish list” when you talk with your favorite Senator or Representative.
Global Trade Trends in Wood Products
 The WMMA now has access to the official import and export statistics of 47 of our major trading partners. The 47 countries I estimate account for over 90% of trade in wood products to include, furniture, rough wood, planned sawn wood, mouldings as well as doors and windows. This article will highlight some of the trends in wood products trade. For a complete set of tables, go to http://www.wmma.org/members/inter_bus.cfm and scroll down to Global Trade in Woodworking Machinery and Wood Products. You will need your user name and password to access the linked tables. If you don’t have one or forgot it, contact WMMA Headquarters at
215-564-3484 or email wmma@fernley.com). If you want statistics for a specific country and/or region and a specific product or range of products, please contact Harold Zassenhaus, 301 652 0693; email: hzassenhaus@fernley.com. The service is free or at minimal cost for WMMA members.
The following are a few explanations to assist you in interpreting the trends:
- For a complete listing of the 47 countries on which we track imports and exports.
- For a complete listing and description of imported and exported products covered.
- The data from the 47 countries is comparable and based on a universally accepted 6-digit Harmonized System (HS) of customs classification codes.
- The statistics from which I am pulling trends are official country import statistics of the group of 47 countries by country. For example, I state in this article that total imports of wood furniture by the 47 countries were $44.1 billion in 2006. As a group, $13.4 billion was imported from China. You may ask, “Why don’t I take the official export statistics of the 47 countries instead since this would reflect total global shipments of the world’s largest producers and not just shipments to the group of 47 nations?” The answer is simple: China under reports its exports and by a lot. For 2006 official Chinese export statistics show total exports to the world were $8.8 billion. The difference cannot be explained by transportation costs or diversion to Hong Kong or elsewhere. So, until we get reliable statistics from one of the world’s most important suppliers we will have to report trade trends through imports of a group of identified players.
- As a final comment, the information now available is extensive. The review that follows is only my assessment of what should be provided to all members and readers of the Cutting Edge. Please let me know what you think of it and please suggest other or additional data you would like to see on a periodic basis. I can be reached at phone (301) 652 0693; fax (215) 963 9785; email hzassenhaus@fernley.com.
Rough Wood (treated or untreated)
Imports from the 47 reporting countries were $10 billion in 2006, a 9% increase over 2005. Russia supplied 35% of the total ($3.5 billion) a 13% increase over 2005, followed by the US, Canada, Germany and New Zealand, respectively.
Some of the fastest growing suppliers of rough wood include:
Fastest Growing Suppliers (over $30 million) of Rough Wood, treated or untreated
Year To Date: January - December |
Partner Country |
United States Dollars |
% Share |
% Change |
2004 |
2005 |
2006 |
2004 |
2005 |
2006 |
2006/2005 |
World |
8,478,096,695 |
9,197,894,677 |
10,000,543,567 |
100.00 |
100.00 |
100.00 |
8.73 |
Cameroon |
16,915,100 |
13,886,945 |
53,401,318 |
0.20 |
0.15 |
0.53 |
284.54 |
Vietnam |
8,658,785 |
9,001,906 |
29,631,858 |
0.10 |
0.10 |
0.30 |
229.17 |
Spain |
16,686,458 |
19,788,502 |
34,892,975 |
0.20 |
0.22 |
0.35 |
76.33 |
Equatorial Guinea |
6,173,482 |
20,035,276 |
34,832,371 |
0.07 |
0.22 |
0.35 |
73.86 |
Uruguay |
38,991,202 |
41,942,933 |
62,806,995 |
0.46 |
0.46 |
0.63 |
49.74 |
Congo |
16,854,254 |
25,855,079 |
34,423,818 |
0.20 |
0.28 |
0.34 |
33.14 |
Gabon |
85,222,242 |
142,060,714 |
184,733,120 |
1.01 |
1.54 |
1.85 |
30.04 |
Germany |
447,441,139 |
455,001,830 |
572,694,578 |
5.28 |
4.95 |
5.73 |
25.87 |
Czech Republic |
149,362,672 |
147,538,165 |
182,291,839 |
1.76 |
1.60 |
1.82 |
23.56 |
Norway |
24,815,132 |
38,110,537 |
47,056,538 |
0.29 |
0.41 |
0.47 |
23.47 |
Australia |
84,642,162 |
71,725,749 |
87,275,403 |
1.00 |
0.78 |
0.87 |
21.68 |
Solomon Islands |
110,130,325 |
148,362,597 |
179,557,991 |
1.30 |
1.61 |
1.80 |
21.03 |
Netherlands |
41,512,255 |
34,705,050 |
41,940,699 |
0.49 |
0.38 |
0.42 |
20.85 |
Papua New Guinea |
229,295,369 |
315,573,396 |
375,030,642 |
2.70 |
3.43 |
3.75 |
18.84 |
United Kingdom |
45,666,224 |
48,613,273 |
56,851,028 |
0.54 |
0.53 |
0.57 |
16.95 |
Hungary |
35,892,714 |
30,813,832 |
35,597,336 |
0.42 |
0.34 |
0.36 |
15.52 |
Russia |
2,866,949,472 |
3,122,813,186 |
3,540,999,709 |
33.82 |
33.95 |
35.41 |
13.39 |
Mozambique |
30,167,050 |
42,038,994 |
47,572,895 |
0.36 |
0.46 |
0.48 |
13.16 |
New Zealand |
502,392,490 |
449,799,529 |
503,801,244 |
5.93 |
4.89 |
5.04 |
12.01 |
Switzerland |
111,768,704 |
104,733,435 |
117,197,976 |
1.32 |
1.14 |
1.17 |
11.90 |
Belgium |
73,137,339 |
72,903,635 |
80,135,631 |
0.86 |
0.79 |
0.80 |
9.92 |
Sawn Wood
Total sawn wood imports from the reporting countries equaled $26.9 billion in 2006, a 2% increase over 2005. Canada, Sweden, US and Germany were the top suppliers accounting for slightly fewer than 54% of total shipments. Canada itself shipped $8.4 billion or 31% of the total. However, its market share has been steadily declining over the past few years. Some of the fastest growing supplier nations are noted in the table below.
Fastest Growing Suppliers (over $30 million) of Sawn wood,
whether or not treated, planned or fingerjointed
Year To Date: January – December |
Partner Country |
United States Dollars |
% Share |
% Change |
2004 |
2005 |
2006 |
2004 |
2005 |
2006 |
2006/2005 |
World |
25,913,636,326 |
26,252,150,835 |
26,899,161,166 |
100.00 |
100.00 |
100.00 |
2.46 |
Peru |
23,155,218 |
29,951,178 |
56,367,380 |
0.09 |
0.11 |
0.21 |
88.20 |
China |
288,862,598 |
330,384,586 |
437,297,084 |
1.11 |
1.26 |
1.63 |
32.36 |
Netherlands |
103,164,433 |
109,132,875 |
137,882,505 |
0.40 |
0.42 |
0.51 |
26.34 |
Thailand |
210,337,067 |
204,742,466 |
243,917,576 |
0.81 |
0.78 |
0.91 |
19.13 |
Slovakia |
123,582,671 |
136,847,501 |
162,596,069 |
0.48 |
0.52 |
0.60 |
18.82 |
Australia |
50,191,290 |
63,542,790 |
75,407,543 |
0.19 |
0.24 |
0.28 |
18.67 |
Spain |
78,882,790 |
100,022,456 |
115,280,239 |
0.30 |
0.38 |
0.43 |
15.25 |
Czech Republic |
288,011,896 |
334,284,774 |
384,051,064 |
1.11 |
1.27 |
1.43 |
14.89 |
Germany |
1,356,686,124 |
1,600,411,477 |
1,825,685,248 |
5.24 |
6.10 |
6.79 |
14.08 |
Russia |
1,263,725,352 |
1,425,963,209 |
1,612,716,110 |
4.88 |
5.43 |
6.00 |
13.10 |
Croatia |
74,151,686 |
76,286,994 |
86,094,184 |
0.29 |
0.29 |
0.32 |
12.86 |
Norway |
102,019,613 |
94,419,012 |
106,227,472 |
0.39 |
0.36 |
0.39 |
12.51 |
Romania |
198,546,938 |
215,499,605 |
241,072,670 |
0.77 |
0.82 |
0.90 |
11.87 |
Denmark |
37,566,870 |
34,507,390 |
38,586,814 |
0.14 |
0.13 |
0.14 |
11.82 |
Portugal |
71,476,738 |
76,730,870 |
85,578,118 |
0.28 |
0.29 |
0.32 |
11.53 |
Switzerland |
56,782,339 |
54,518,383 |
60,723,248 |
0.22 |
0.21 |
0.23 |
11.38 |
Sweden |
2,094,852,768 |
2,188,861,841 |
2,431,657,342 |
8.08 |
8.34 |
9.04 |
11.09 |
Laos |
53,606,448 |
52,112,796 |
57,249,295 |
0.21 |
0.20 |
0.21 |
9.86 |
Hungary |
72,605,158 |
63,580,206 |
69,644,941 |
0.28 |
0.24 |
0.26 |
9.54 |
Belgium |
212,339,495 |
226,639,221 |
246,217,603 |
0.82 |
0.86 |
0.92 |
8.64 |
Continuously Shaped Wood, moulded, tongued, grooved, etc.
Total imports by the 47 reporting countries reached $5.2 billion in 2006, a 12% increase over 2005. China was the largest supplier nation shipping over $1 billion to the group, a 20% increase over 2005. The other countries that rounded out the top 5 were Brazil, Indonesia, Chile and Canada. The fastest growing suppliers are shown in the following table.
Fastest Growing Suppliers (over $6 million) of
Continuously Shaped wood, moulded, tongued, grooved, etc.
Year To Date: January – December |
Partner Country |
United States Dollars |
% Share |
% Change |
2004 |
2005 |
2006 |
2004 |
2005 |
2006 |
2006/2005 |
World |
4,355,276,207 |
4,638,882,372 |
5,202,574,874 |
100.00 |
100.00 |
100.00 |
12.15 |
Peru |
3,661,271 |
4,380,219 |
8,106,177 |
0.08 |
0.09 |
0.16 |
85.06 |
Switzerland |
4,587,240 |
6,081,936 |
9,838,042 |
0.11 |
0.13 |
0.19 |
61.76 |
Congo Dem. Rep. |
4,759,874 |
4,063,964 |
6,343,378 |
0.11 |
0.09 |
0.12 |
56.09 |
Ukraine |
8,727,202 |
10,148,172 |
15,188,096 |
0.20 |
0.22 |
0.29 |
49.66 |
Belarus |
8,732,091 |
8,315,575 |
11,850,088 |
0.20 |
0.18 |
0.23 |
42.50 |
Taiwan |
16,153,771 |
21,670,325 |
30,358,021 |
0.37 |
0.47 |
0.58 |
40.09 |
Lithuania |
7,407,283 |
10,083,728 |
14,010,854 |
0.17 |
0.22 |
0.27 |
38.95 |
Slovakia |
9,327,639 |
8,475,759 |
11,582,965 |
0.21 |
0.18 |
0.22 |
36.66 |
Bolivia |
4,516,799 |
5,337,885 |
7,284,092 |
0.10 |
0.12 |
0.14 |
36.46 |
Argentina |
35,773,496 |
32,673,747 |
43,643,902 |
0.82 |
0.70 |
0.84 |
33.57 |
Russia |
14,441,294 |
17,379,545 |
23,016,887 |
0.33 |
0.37 |
0.44 |
32.44 |
Luxembourg |
6,042,117 |
8,964,413 |
11,227,404 |
0.14 |
0.19 |
0.22 |
25.24 |
Indonesia |
420,689,624 |
439,799,317 |
536,386,617 |
9.66 |
9.48 |
10.31 |
21.96 |
Thailand |
30,148,767 |
28,050,056 |
33,983,672 |
0.69 |
0.60 |
0.65 |
21.15 |
Brazil |
526,976,180 |
566,986,039 |
682,791,660 |
12.10 |
12.22 |
13.12 |
20.42 |
China |
621,443,972 |
854,263,625 |
1,027,846,439 |
14.27 |
18.42 |
19.76 |
20.32 |
Chile |
332,077,585 |
302,542,916 |
363,659,265 |
7.62 |
6.52 |
6.99 |
20.20 |
Singapore |
10,897,985 |
13,442,404 |
15,971,192 |
0.25 |
0.29 |
0.31 |
18.81 |
Netherlands |
75,668,473 |
73,243,085 |
86,601,404 |
1.74 |
1.58 |
1.66 |
18.24 |
Poland |
65,935,601 |
74,246,269 |
86,216,499 |
1.51 |
1.60 |
1.66 |
16.12 |
Malaysia |
157,102,411 |
151,402,884 |
175,780,853 |
3.61 |
3.26 |
3.38 |
16.10 |
Builders’ Joinery
Total imports were $10 billion in 2006, an 11% increase over 2005. Canada provided 19% of the total with China, Germany, Austria and Poland rounding out the top 5 supplier nations. The fastest growing markets included:
Fastest Growing Suppliers (over $10 million) of Builders Joinery, windows, doors, parquet, etc.
Year To Date: January – December |
Partner Country |
United States Dollars |
% Share |
% Change |
2004 |
2005 |
2006 |
2004 |
2005 |
2006 |
2006/2005 |
World |
8,174,516,519 |
8,613,801,938 |
9,587,552,510 |
100.00 |
100.00 |
100.00 |
11.30 |
Yugoslavia |
443,330 |
1,035,420 |
10,961,019 |
0.01 |
0.01 |
0.11 |
958.61 |
Serbia |
- |
2,846,244 |
11,525,167 |
0.00 |
0.03 |
0.12 |
304.93 |
Belarus |
9,284,699 |
14,237,279 |
29,506,479 |
0.11 |
0.17 |
0.31 |
107.25 |
Croatia |
28,013,125 |
28,072,095 |
43,328,109 |
0.34 |
0.33 |
0.45 |
54.35 |
Argentina |
11,238,684 |
10,750,539 |
16,307,798 |
0.14 |
0.12 |
0.17 |
51.69 |
Russia |
32,808,664 |
38,359,918 |
56,704,882 |
0.40 |
0.45 |
0.59 |
47.82 |
Bosnia & Herzegovina |
8,725,617 |
12,283,104 |
18,149,638 |
0.11 |
0.14 |
0.19 |
47.76 |
China |
558,458,859 |
724,072,715 |
1,011,804,867 |
6.83 |
8.41 |
10.55 |
39.74 |
Ukraine |
16,773,126 |
16,323,000 |
22,199,771 |
0.21 |
0.19 |
0.23 |
36.00 |
Estonia |
66,877,842 |
82,799,511 |
112,602,953 |
0.82 |
0.96 |
1.17 |
35.99 |
Taiwan |
7,948,112 |
14,324,583 |
19,451,593 |
0.10 |
0.17 |
0.20 |
35.79 |
Singapore |
6,094,759 |
8,600,218 |
11,431,523 |
0.07 |
0.10 |
0.12 |
32.92 |
Brazil |
269,068,007 |
284,492,244 |
376,018,060 |
3.29 |
3.30 |
3.92 |
32.17 |
Hungary |
96,762,166 |
79,607,928 |
104,005,727 |
1.18 |
0.92 |
1.08 |
30.65 |
Poland |
341,428,244 |
360,780,081 |
454,989,111 |
4.18 |
4.19 |
4.75 |
26.11 |
Ireland |
21,411,147 |
18,474,653 |
22,839,912 |
0.26 |
0.21 |
0.24 |
23.63 |
Philippines |
188,613,254 |
209,938,112 |
250,610,751 |
2.31 |
2.44 |
2.61 |
19.37 |
Finland |
212,593,124 |
195,889,452 |
233,034,741 |
2.60 |
2.27 |
2.43 |
18.96 |
Slovakia |
39,432,081 |
42,956,165 |
50,895,575 |
0.48 |
0.50 |
0.53 |
18.48 |
Portugal |
57,649,498 |
60,105,480 |
70,708,575 |
0.71 |
0.70 |
0.74 |
17.64 |
Wood Furniture
Total wood furniture imports reached $44 billion, a 7% increase over 2005. China now supplies over 30% of the world’s trade in furniture. It shipped $13.4 billion to the 47 reporting countries, a 19% increase over 2005 and over 3 times the amount of the world’s 2nd largest supplier, Italy. Other suppler nations rounding out the top 5 were Germany, Poland and Canada, respectively. By 2007 Vietnam will likely replace Canada as the 5th largest supplier nation. The fastest growing supplier nations were:
Fastest Growing Suppliers (over $20 million) of Wood Furniture
Year To Date: January – December |
Partner Country |
United States Dollars |
% Share |
% Change |
2004 |
2005 |
2006 |
2004 |
2005 |
2006 |
2006/2005 |
World |
38,420,154,941 |
41,374,497,426 |
44,068,574,651 |
100.00 |
100.00 |
100.00 |
6.51 |
Singapore |
45,207,144 |
47,470,129 |
69,459,362 |
0.12 |
0.11 |
0.16 |
46.32 |
Bosnia & Herzegovina |
37,894,281 |
47,301,373 |
60,640,800 |
0.10 |
0.11 |
0.14 |
28.20 |
Lithuania |
347,331,178 |
342,547,664 |
426,489,295 |
0.90 |
0.83 |
0.97 |
24.51 |
Vietnam |
1,081,875,785 |
1,492,154,970 |
1,845,412,974 |
2.82 |
3.61 |
4.19 |
23.67 |
United States |
638,150,906 |
705,610,611 |
851,165,027 |
1.66 |
1.71 |
1.93 |
20.63 |
China |
9,008,463,447 |
11,231,884,183 |
13,378,513,119 |
23.45 |
27.15 |
30.36 |
19.11 |
Hong Kong |
115,204,950 |
105,854,304 |
125,995,223 |
0.30 |
0.26 |
0.29 |
19.03 |
Hungary |
161,763,927 |
153,029,343 |
178,345,822 |
0.42 |
0.37 |
0.40 |
16.54 |
Slovakia |
278,121,818 |
322,635,132 |
371,645,936 |
0.72 |
0.78 |
0.84 |
15.19 |
New Zealand |
29,657,317 |
29,026,626 |
32,615,002 |
0.08 |
0.07 |
0.07 |
12.36 |
Austria |
241,862,602 |
274,946,427 |
304,950,675 |
0.63 |
0.66 |
0.69 |
10.91 |
Ukraine |
50,610,969 |
60,529,784 |
66,771,436 |
0.13 |
0.15 |
0.15 |
10.31 |
Malaysia |
1,369,445,422 |
1,543,951,046 |
1,700,837,558 |
3.56 |
3.73 |
3.86 |
10.16 |
Romania |
752,874,196 |
804,618,272 |
886,300,504 |
1.96 |
1.94 |
2.01 |
10.15 |
India |
245,742,912 |
275,535,181 |
300,964,232 |
0.64 |
0.67 |
0.68 |
9.23 |
Norway |
232,008,796 |
232,263,829 |
253,564,488 |
0.60 |
0.56 |
0.58 |
9.17 |
Latvia |
93,121,381 |
88,108,739 |
95,981,825 |
0.24 |
0.21 |
0.22 |
8.94 |
United Kingdom |
412,883,107 |
409,552,038 |
443,124,476 |
1.07 |
0.99 |
1.01 |
8.20 |
Germany |
2,402,556,985 |
2,563,831,015 |
2,754,263,104 |
6.25 |
6.20 |
6.25 |
7.43 |
Note: the US exported over $850 million in 2006 and shipments grew by over 20%. Fro the 1st quarter 2007 US wood furniture exports grew by 13% to $362 million. Clearly those US furniture manufacturers that remain are finding good and profitable markets overseas.
Morris Wood Tool Acquires Historic Forstner Bit Manufacturer
In a move that combines two of America’s oldest woodworking tool makers, Morris Wood Tool Co., Inc. has purchased Connecticut Valley Manufacturing Co., Inc., also known by the trade name, CONVALCO, the world’s longest running producer of Forstner bits. Morris Wood Tool will relocate the seller’s New Britain, Connecticut manufacturing operations to its Morristown, Tennessee, factory, concurrent with a planned building expansion.
“As the longest active distributor of the CONVALCO Forstner bit, we are pleased for the opportunity to become manufacturer and steward of its long legacy. Our company will faithfully preserve the integrity of the tool’s unique design, even as we continue to incorporate new technology into our processes,” said Morris Wood Tool general manager, Richard Goan.
To assure that CONVALCO’S proprietary manufacturing methods are fully integrated into the buyer’s operations, onsite training of Morris Wood Tool machinists is underway, in Connecticut. Key CONVALCO personnel, including outgoing president, Anthony Garro, have been retained as
consultants, during the transition. “I am delighted that Morris Wood Tool is to continue our century long tradition of manufacturing the world’s first, and still finest, Forstner Bits,” said Garro, who succeeded his father as owner of CONVALCO. A coincidence of the companies’ merger is a striking similarity in their separate histories. Both have been family owned and operated for 133 years, and each owes a debt of prosperity to the inventions of two late nineteenth century gunsmiths. In 1890, Morris Wood Tool founder, Morris Wood, patented his “combined boring tool,” or adjustable counterbore, which remains a woodworking industry standard. In 1874, Benjamin Forstner invented the “Forstner flange bit,” or Forstner bit, which was later produced exclusively by CONVALCO.
While imported Forstnertype bits commonly feature a prominent center spur and two or mo |
