Pit & Quarry, June 2013

BUSINESS Tax rule changes are coming that will affect aggregate producers in the United States izing the replacement of a part or component It should be kept in mind that an increase in value is only one of many factors that must be considered to determine deductibility or capitalization We have changes The new regulations are the IRSs third attempt to provide comprehensive guidance under the repair or capitalize rules They attempt to answer such questions as how to treat environmental remediation expenses and how to treat rotatable spare parts used in repairs One significant rule change allows an aggregates producer to deduct retirement losses for building components If for example the crushed stone operation replaces the roof on a building and disposes of the old roof it now has the option of taking a retirement loss for the old roof Of course the replacement must be capitalized but at least a retirement loss can be claimed De minimis Another change involves the de minimis expensing rule This rule allows those in the aggregates mining industry to expense or write off the acquisition cost of property on its books for financial reporting purposes This immediate write off is available to sand gravel or crushed stone operations with a written policy in place to do that but only up to a threshold or ceiling The new regulations also include many types of materials and supplies among those eligible for the de minimis expensing rule Under earlier rules they were not eligible or only some categories were Under the new elective de minimis rule amounts other than inventory or land along with amounts paid for any materials and supplies dont have to be capitalized That is the amounts do not have to be capitalized if the aggregates operation has an applicable financial statement such as one required by the Securities and Exchange Commission or a certified audited financial statement and written accounting procedures in place for treating the amounts as expenses on its AFS Materials and supplies The temporary regulations modify and expand the definition of materials and supplies in earlier rules provide an alternative optional method of accounting for rotable and temporary spare parts and provide an election to treat certain materials and supplies as currently deductible under a de minimis rule Materials and supplies may now be currently deducted as an expense if they are acquired to maintain repair or improve business property owned leased or serviced by the aggregates producer consist of fuel lubricants water and similar items that are reasonably expected to be consumed within 12 months with an economic useful life of less than 12 months or costing less than 100 Leased and rented property The temporary regulations retain a rule allowing an aggregates mining operation to amortize and write off the costs of acquiring a leasehold over the term of the lease and make only minor revisions to the rules for treating the cost of erecting a building or making a permanent improvement to property leased by the operation if it is a capital expenditure and is not deductible as a business expense The temporary regulations do however require a lessee or lessor to depreciate or amortize its leasehold improvements under the cost recovery provisions without regard to the term of the lease Removed under the new regulations are the rules permitting amortization over the shorter of the estimated useful life or the term of the lease A safe harbor A safe harbor has been created for routine maintenance on property other than buildings Routine maintenance includes the inspection cleaning and testing of the unit of property and replacement of parts of the unit of property with comparable and commercially available and reasonable replacement parts Unfortunately in order to be considered routine maintenance the aggregates producer has to expect to perform these services more than once during the class life Here they come These new temporary regulations apply for amounts paid or incurred in tax years beginning after Dec 31 2011 In some instances a change to comply with the new rules will be considered a change in accounting method requiring the consent of the commissioner The new rules generally require capi www pitandquarry com June 2013 PIT QUARRY 49 ISTOCKPHOTO COM JOSEPH ABBOTT