There are plenty of reasons today to make a capital expenditure on materials handling equipment and related software. Higher productivity, increased throughput, labor savings, faster order turnaround, to name a few. Now some of these apply to certain applications and not others. But the one criteria that gets applied to every materials handling system these days is return on investment - ROI. It's as important to capital expenditures in 2002 as location has been to real estate forever.

But now there are new depreciation rules that can help with the ROI process. It's called the Job Creation and Worker Assistance Act of 2002, which John Ivey of Creative Storage Systems called to my attention last month.

In part, his note said, "I am amazed at the number of end users (he was kind enough not to mention editors) that are not aware of this information which could have a significant impact on project go ahead decision making." That's where this column comes in.

The centerpiece of the Act from a business perspective is what is known as the 30 percent depreciation bonus. It occurs in the first year after purchase of equipment and/or software. As the web site www.depreciationbonus.org explains, "you can now write off 30 percent immediately and you can also write off the 20 percent of the remaining 70 percent of undepreciated costs that you were entitled to deduct under pre-existing law."

In other words, on a $100,000 expenditure you can depreciate $44,000 (not $20,000 as in the past) in the first year and enjoy a tax savings of $9,600 right away. As you might expect, the bonus is only in the first year and depreciation levels in subsequent years are less than before, ensuring total depreciation does not exceed 100%.

But that's not the point. What's important is that the Act offers some relief in the tough capital expenditure climate that we're in right now. Furthermore, it covers only new equipment. And it is applicable only to equipment purchased after September 11, 2001 and before September 11, 2004 as long as it is put into service before January 1, 2005.

You certainly need more detail than what's here to depreciate the expenditure correctly, but surely you can put this bonus to good use. Without some other relief in the tax codes, which I wouldn't expect right now, depreciation is not going to become any more favorable than it is with this bonus.

Go ahead. Make use of it. The worst it can do is improve your ROI a bit and your materials handling operations by a lot. And in the current economic environment, that ought to be a winning combination.