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Earlier this month, the US government proposed a tax credit that would allow companies to fully depreciate their investments in new equipment and other capital expenditures through the end of 2011. Instead of depreciating investments in these assets over an extended period, companies would be able to write off the full investment in the first year, resulting in fairly significant tax savings. Most companies depreciate their ERP software over three to five years, so this incentive would allow qualified companies to depreciate the software purchase in a single year.

How will this affect investments in ERP software? That remains to be seen. Interest rates are hovering near zero, most companies are flush with cash, and the economy is still very uncertain, which all undermine the potential benefit that companies may see from this tax credit. In addition, ERP vendors have already brought their A game in terms of aggressive pricing and financing, more flexible deployment and hosting options, and other methods of enticing potential customers, so it’s unclear how much this incentive would help companies make a decision to more comfortably move forward with their ERP initiatives.

On the other hand, we have found that many companies have been sitting on the fence for several quarters – years in some cases – where the immediate tax relief would be enough of an incentive to push them into action. After all, even though it is a benefit that would be paid back in later years once the software was fully depreciated, an immediate 40% tax benefit for the purchase of software licenses can be significant to many companies.

What are your thoughts? Take our poll below or view how others feel that the potential tax incentive would affect their ERP investments.

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