To:
VP of Tax, Client
From:
Rohan, KPMG U.S. LLP
Date:
Today’s Date
Subject:
Federal and State Tax Implications of Fulfillment Project
Issues:
1. MACRS Tax Depreciation Expense Calculation
2. IRC Section 118 Qualification for $2M State Grant
3. State Tax Perspective (Ohio vs. Virginia)
Research:
MACRS Recovery Periods:
1.MACRS defines depreciation for tax purposes.
Recovery Periods:
Building: 39 years
Building Shell: 15 years
Equipment: 7 years (no bonus depreciation, no Section 179 allowance)
IRC Section 118 - Contributions to Capital:
2.IRC Section 118 excludes capital contributions from gross income.
Exceptions:
Excludes contributions for construction or as a customer.
Excludes contributions by governmental entities or civic groups.
$2M state grant may qualify under IRC Section 118.
Analysis:
Federal Issues:
1. MACRS Tax Depreciation Expense
Building: $128,205.13
Building Shell: $181,818.18
Equipment: $1,428,571.43
2. IRC Section 118 Qualification for $2M State Grant:
Referenced IRC Section 118, which excludes contributions to the capital of the taxpayer from gross
income. Exceptions under subsection (b) were considered, and the grant might be exempt if it aligns with
these exceptions.
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State Issues:
Virginia Corporate Income Tax Rate: 6.000%
Calculations:
Ohio State Tax Liability: To be calculated.
Virginia: State Tax Liability: $300,000
Conclusions:
Final recommendation for the optimal state location is pending due to the unavailability of information on
Ohio's Commercial Activity Tax Rate.
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