How the New Tax Law Will Impact the Security Industry
The new tax law, H.R. 1, the Tax Cuts and Jobs Act, P.L. 115-97, was signed into law Dec. 22, 2017. SIA applauded key provisions of that law, but what impact do experts say the new law will have on the security industry?
SDM spoke with Jake Parker, director of government relations, Security Industry Association (SIA), and — for perspective from a systems integrator — Steve Paley, president and CEO, Rapid Security Solutions LLC, Sarasota, Fla., ranked No. 87 on SDM’s Top Systems Integrators Report. Paley has background and education as an accountant and serves as treasurer of ESA.
The parts of the bill most likely to affect dealers and integrators, Parker said, depend on a business’s size and how it is organized. “The primary business tax reforms in the new law,” Parker described, “are 1.) a reduction in the maximum corporate income tax rate to 21 percent, 2.) a reduction in income tax rates for pass through businesses organized as sole proprietorships, partnerships and S Corporations, and 3.) an expansion of business expensing.”
For this reason, it isn’t just the security industry that will be affected; any small business that is already a C Corporation is going to get a benefit because of the reduced tax rate, Paley said. “However,” he adds, “luckily for sub-chapter S and partnerships — most small businesses aren’t C-corps — there still is a deduction available of 20 percent of the pass-through income. So there is some benefit.” Paley said it is the much bigger companies that will benefit most.
While both men believe the tax law will be a benefit for the industry, Paley said that getting a big tax break for expensing an entire system in one year will offer a large tax break to end users, but he doesn’t think that will sway people to get systems who wouldn’t have otherwise purchased one. “Certainly it is a benefit, but I don’t think it is going to sway people. I don’t think everyone is rushing now to integrators or security dealers because they can deduct it in the first year.”
He added, “It’s definitely a selling point, and during your presentation you would certainly want your client to be aware of it because it offers them another benefit in doing the system because now there’s some tax benefit behind it.”
To assist the industry, SIA has recently released its “Guide to New Tax Incentives for Security and Fire Protection Systems,” which can be downloaded at www.securityindustry.org/report/guide-to-new-tax-incentives-for-security-and-fire-protection-systems and shared with customers. "Dealers and integrators will benefit greatly from educating customers on the new tax incentives included in the new law," Parker said.
Parker pointed out that a particular area the law will boost is on the manufacturing and supply side of things. “According to a survey by the National Association of Manufacturers last fall, almost 70 percent of manufacturers said that enactment of the tax reform package would make them more likely to expand their businesses and increase capital spending. And, 60 percent said they would be more likely to hire more workers.”
But don’t expect the process to be any simpler. Parker said one area where the new law falls a little short of initial goals was in tax simplification. “Many new businesses tax rules, especially the determination of income for pass through entities, will require at least as much, if not more involvement from tax professionals to assist businesses with tax planning.”
Ultimately, Parker said, the business tax reforms in the new law will directly reduce tax burdens for dealers and integrators, and do the same for customers in the commercial sector. “These savings can be reinvested to expand operations for both, increasing growth opportunities and corresponding need for security technology and infrastructure.”
Paley said he believes overall it will be business as usual in the security industry. “Everyone in the world needs security and asset protection solutions. Some of these [benefits] are nice to have and good to point out, but ultimately, I don’t think the law is going to affect the industry on a high level one way or the other.” Paley said that while the security industry will most likely see a benefit, the industry was thriving before the new bill and will continue to thrive after it.