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SMALL BUSINESS EXPENSING: JOB GROWTH

THROUGH THE TAX CODE

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT 

& GOVERNMENT PROGRAMS

OF THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC, AUGUST 9, 2005

Serial No. 109–29

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT AND GOVERNMENT 

PROGRAMS 

MARILYN MUSGRAVE, Colorado Chairman 

ROSCOE BARTLETT, Maryland 

BILL SHUSTER, Pennsylvania 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

THADDEUS MCCOTTER, Michigan 

JEB BRADLEY, New Hampshire 

DANIEL LIPINSKI, Illinois 

TOM UDALL, New Mexico 

DANNY DAVIS, Illinois 

RAU ́ L GRIJALVA, Arizona 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin

JOE HARTZ, Professional Staff

(II) 

C O N T E N T S 

WITNESSES

Page 

Henderson, Mr. Jim, Regional Advocate, US Small Business Administration, 

Region VIII ........................................................................................................... 5

Jones, Ms. Linda, Owner, Area Rent-Alls ............................................................. 6

Hau, Mr. Craig ......................................................................................................... 9

Lautzenheiser, Mr. Ron, Owner, Big O Tire ......................................................... 10

Pehkonen, Mr. Rob .................................................................................................. 11

APPENDIX

Prepared statements: 

Henderson, Mr. Jim, Regional Advocate, US Small Business Administration, Region VIII ........................................................................................... 18

Jones, Ms. Linda, Owner, Area Rent-Alls ...................................................... 25

Hau, Mr. Craig ................................................................................................. 28

Lautzenheiser, Mr. Ron, Owner, Big O Tire .................................................. 29

Pehkonen, Mr. Rob ........................................................................................... 31

(III) 

(1)

SMALL BUSINESS EXPENSING: JOB GROWTH 

THROUGH THE TAX CODE 

TUESDAY, AUGUST 9, 2005

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT, AND

GOVERNMENT PROGRAMS

COMMITTEE ON SMALL BUSINESS

Washington, DC 

The Subcommittee met, pursuant to call, at 1:30 p.m., in The 

Commissioners Hearing Room, Larimer County Courthouse, Fort 

Collins, Colorado, Hon. Marilyn Musgrave [Chairwoman of the 

Subcommittee] presiding. 

Present: Representatives Musgrave and Beauprez. 

Chairwoman MUSGRAVE. Good afternoon. I want to thank you all 

for coming. I am very happy to be here today and I would like to 

thank Larimer County Commissioners for allowing us to use this 

room. They have great facilities here and I appreciate their 

accomodation so very much. 

Before we begin I would also like to thank my good friend, Congressman Bob Beauprez, for joining us today. I am very happy to 

have him here. I served with him on the Small Business Committee in the 108th Congress. He is an invaluable asset to Congress and he has quite a life story to tell. He has very good real 

world experience when it comes to business. I so much appreciate 

that. 

He has owned a small business. He has had to make a payroll. 

He has had to find affordable health insurance for his employees 

and he has had to comply with government regulations and those 

are no small task. 

He also realizes the immense burden placed on small businesses 

by a federal government and he has excellent ideas as to how to 

rectify that situation. Really when you look around at the members 

of Congress, few have had the experience that Congressman 

Beauprez brings to Congress and to this hearing today. 

You know, when you look at the Members of Congress, perhaps 

too few of them have ever had to make a payroll themselves and 

they have no idea of the challenges that small business owners 

face. Despite the significant tax relief that Congress and President 

Bush passed for small businesses, the tax code is still ridiculously 

complex and burdensome. 

A 2001 study conducted by the SBA’s Office of Advocacy found 

tax compliance on average $1,200 per employee for small firms 

compared to $562 per employee for large firms. That is a signifiVerDate 0ct 09 2002 19:19 Dec 02, 2005 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\HEARINGS\23282.TXT MIKE
2

cant handicap for a small business because anybody who understands opportunity knows that every extra minute spent deciphering the tax code is one less minute that the owner can spend 

growing his or her business, providing new jobs, and revitalizing 

our economy. We must continue to strive for less burdensome levels 

of taxation along with simplicity in our tax code. 

This brings us to the topic today, expensing. As many of you 

know, Section 179 of the Internal Revenue Code limits the amount 

a small business may directly expense in a given year versus what 

can be depreciated over time. Under the Jobs and Growth Tax Relief Reconciliation of 2003 signed into law by President Bush, the 

maximum allowance was raised from $25,000 to $100,000 and the 

phase-out threshold from $200,000 to $400,000 in ’03 through 2005. 

The American Job Creation Act of 2004 extended the enhancements made by the ’03 Bush tax cuts through 2007. Unfortunately, 

without further action by Congress these limits will return to 

$25,000 and $200,000 respectively when the expensing limit expires in 2007. 

Earlier this year I introduced HR 1678 which will extend the 

higher Section 179 limits through 2010. Maintaining the higher 

limits will result in higher demand of goods, benefiting manufacturers and equipment sellers. It also means small business owners 

will have extra money in their hands to hire more employees and 

put the new equipment to use immediately. Extending higher limits of Section 179 through 2010 helps provide greater stability and 

more tax relief for small business owners allowing them to better 

plan for their future. 

We must always look at ways to foster growth from within small 

businesses and Section 179 can certainly play a major part. In a 

perfect world I would like to see the end of depreciation schedules 

allowing both large and small businesses to expense everything; 

providing an immediate and healthy boost to the business community. 

Depreciation and the record keeping that goes along with it is a 

complex and time-consuming process. For a small business that 

may be using cash accounting, expensing the cost of equipment 

purchases is much easier and much more realistic. Realizing that 

we cannot get to that point overnight, an excellent place to provide 

certainty and confidence in the tax code is maintaining the direct 

expensing limits under 179 of the IRS code. 

Small businesses are the backbone of our economy. We hear this 

all the time. They represent 99 percent of all employers. More than 

half of all U.S. employees work for small firms and they generate 

between 60 and 80 percent of all new jobs in America. Small businesses are the main component of our economic engine and we as 

your elected officials must do all we can to foster, not hinder, their 

growth. 

Extending the increased spending limits is a good start but we 

must and will do more. High and confusing taxes are some of the 

most important issues we will be working on to help small businesses grow and prosper. I am eager to hear today’s testimony but 

before we begin I would like to recognize Congressman Beauprez 

for some opening comments. 

3

Mr. BEAUPREZ. Thank you, Madam Chair. Let me return the 

favor a little bit. You were very, very generous in your comments. 

You have obviously worked tirelessly in Congress and on the Small 

Business Committee especially and it has been duly rewarded by 

asking you to chair this important subcommittee. I think it should 

be noted by your constituents and all of us in Colorado by a round 

of applause, if you don’t mind. 

There are a few things from my time in elective office, which is 

small by comparison to you, but there are a few things that I have 

taken note of. One of those is that politicians will almost uniformly 

from the city counsel level of the President of the United States 

pledge allegiance to supporting a strong expanding job-creating 

economy. Who isn’t going to pledge that they will do that? When 

you have people like Congresswoman Musgrave that actually understand how you can make that happen, it becomes very, very different. 

What we are talking about today with your bill, HR 1678, is exactly that. When we first discussed this during the Jobs Act, the 

big tax bill from the 2003 Congress, there were actually members 

of the United States Congress who openly said, ‘‘Gee, if we increase 

expensing from $25,000 to $100,000, that won’t do much, will it?’’ 

Well, I just found that absolutely perplexing that anybody in the 

United States Congress would actually say that. They not only said 

it, they really believed that was the case. They just didn’t know. 

No basis of understanding. 

I have run a dairy farm before and then later our own little community bank, which is a small business really just like anybody 

else’s. It immediately made sense to me, especially from running 

the bank, 85 percent of our loan customers at that bank were small 

business people. Most of them owned or operated mom and pop 

some people would call them. 

I immediately reasoned, let’s see, if we can take from $25,000 to 

$100,000 that expensing allowance, we are basically saying we will 

spot you the first about 35 cents on the dollar of everything that 

you would like to purchase between that $25,000 and $100,000. 

Would that make a difference? You bet it would. 

Walk in a machine shop and somebody, the guy running that 

place, will immediately tell you, ‘‘Yeah, I would like to get a new 

drill press, a new lathe.’’ You walk into almost any manufacturing 

firm and they are going to have a long list of equipment they would 

like to purchase, retail operations. Absolutely. Guess what happened even as we just talked about these tax cuts? The economy 

got going again, didn’t it? Just by talking about it. 

Then when the President signed it, we immediately saw a spike 

up, GDP went to over 8 percent. It went up over 8 percent. We 

have had 14 consecutive sustained quarters of growth. Eight of 

them over 3 and a quarter percent. It looks like more in front of 

us. 

Jobs. We have created now almost 4 million new jobs in just over 

two years. The new job numbers out just the other day are extremely encouraging. Over 200,000. In Colorado alone last month—

we are still waiting on the newest of the new. Jim, maybe you have 

those, I don’t know, but I haven’t seen the newest one. 

4

I have seen $49,000 in Colorado and we were lagging a little bit. 

We were just a little bit slow getting going again. I think a lot of 

that was due to the fact that we took such a blow and we were so 

dependent on the high tech sector. Then what our airlines are 

going through wasn’t all that helpful either. We took a pretty good 

hit but we are coming back, 49,000 new jobs. 

We are about the 25th largest work force in the nation. Of the 

50 states we are just about dead even. But when you look at job 

creation, there is only about 12 or 13 of those 25 states that are 

bigger than us. Only about half of them that are creating jobs faster than we are. 

Our GSP, gross state product, is growing at about 3.8 percent so 

we are out performing even a very robust national economy right 

now. Why do I say all that? I say all that, Madam Chair, because 

I think it is important we keep it going. The last thing in the world 

that would make any sense to me is that once you get something 

headed in the direction you want it to go in, why would you turn 

the steering wheel and send it in a different direction? 

We know why the economy got going. It is the hard work of people like right here in this room, especially you that are going to testify to us today. You are the ones that get the economy going. At 

best maybe we can implement decent policy that gives you a 

chance to get it going and realize your dreams, make a difference, 

create jobs and opportunity and get this economy going again. I 

think one of the big ways that we did implement some good policy 

is by increasing the expensing deduction as we did in the last big 

tax bill. 

I have the wonderful opportunity now of serving on Ways and 

Means and when we get back shortly after Labor Day we will be 

taking up, Madam Chair, the whole issue of these taxes, these tax 

cuts that we put in place that I think made so much sense. 

The testimony we are going to hear from this panel today and 

your leadership will be very important to us getting the collective 

information at the Ways and Means Committee to hopefully make 

the right decisions as we go forward. What can we do and what can 

we do without. This is one that I think made a huge amount of difference. I look forward to the testimony from these witnesses. With 

that I will yield back. 

Chairwoman MUSGRAVE. Thank you, Mr. Beauprez. I want to 

welcome the witnesses today. We are very mindful of your expertise and your firsthand knowledge on these issues. I certainly want 

to extend my appreciation for you taking time to be before us here 

today. 

We have a rather primitive timing system here because we don’t 

have lights like we do in Congress but we are going to have a green 

light when you are at about—when you have spoken for three minutes you will get that. When you have spoken for four, you will get 

the yellow. 

When you get the red you have had your five minutes but 

blessed are the merciful for they shall receive mercy so don’t get 

nervous. I appreciate your being here today and we are going to 

start off with Mr. Jim Henderson, a regional advocate for the SBA 

Region 8. Thank you so much for being here. 

5

STATEMENT OF MR. JAMES HENDERSON, REGION VIII, OFFICE 

OF ADVOCACY, US SMALL BUSINESS ADMINISTRATION 

Mr. HENDERSON. Thank you Congresswoman Musgrave and Congressman Beauprez and the Committee. It is a great honor and 

privilege to be here today with you to submit not only some verbal 

comments but also our written testimony which I will be summarizing with my comments. 

As you said, I am Jim Henderson and I am the Regional Advocate for the U.S. Small Business Administration, Office of Advocacy. It is a small portion of the Small Business Administration 

that was created specifically to be a voice for small business because a lot of times small businesses simply do not have the time 

to get to hearings like this and express their views. So that is one 

of the missions we have at the Office of Advocacy. 

I also want to say that if there are any tough questions you 

throw at me later, I brought my tax counsel here, Candace Ewell. 

She is also from the Office of Advocacy. She can handle the tough 

ones and I will take the easy ones. 

Small businesses, as I said earlier, finds it difficult to have the 

time and the Committee asked specifically what is the impact of 

the expensing provision on the small business community? Section 

179 has had a significant positive impact on the small business 

community in particular in two areas. 

One, it enables them to increase their cash flow and the other 

is it dramatically reduces their paperwork as you alluded to in your 

opening comments about the difficulty of the tax code in deciphering that whole process. 

We looked at the data in 1999. The tax data that we could get 

a hold of showed that 69 percent of the business that elected to 

take advantage of expensing for their purchases were actually 

small proprietors and individual farmers. That represents nationwide about 2.9 million small businesses so there are a lot that look 

to this provision to help them manage and operate their business. 

Chairwoman Musgrave, it is your leadership, and Congressman 

Beauprez’ leadership as well, that has helped in a number of other 

areas in making the regulatory environment more user friendly, if 

you will, for the small business community. We commend you on 

that. 

With regard to the expensing provision, I think the quickest way 

to drive home its importance is to just cite some examples. One example I would like to mention I got from one of the CPAs in Colorado Springs about a firm that he was coaching, if you will, to open 

up a medical clinical. A medical clinic is very high-intensity capital 

investment. He explained to him the benefit of using the expensing 

provision. 

In fact, they used it nearly to the max to open this clinic. But 

what was even more dramatic for them was by having the latest 

state of the art equipment, it enabled them to compete more as 

they started their start-up business. The other thing was by expensing and bring some of that money back into the business they 

were able to hire a couple of key employees that they wanted to 

have at the very start of their business operation. 

Another example I would like to cite also comes from another 

CPA is a town, actually a very small town. It has a cheese plant 

6

in it and they wanted to upgrade their operation. It was going to 

be a substantial investment in new equipment. 

Again, they took advantage of the expensing provision which enabled them to expand that operation in that small community. But 

by using that expensing provision and bringing some of that capital 

back in to their cash flow, they were able to move from having 13 

or 14 employees up to 20 employees. 

If you sit in one of these small towns and see where one business 

has been able to increase by six employees, that in that local economic area is a significant impact. That is why we are very concerned that this legislation that you have proposed to extend the 

higher expensing provisions is extended. I see that I have the yellow light already. 

The importance of this legislation just cannot be, I think, overstated. It has a dramatic effect and with the smaller firms as they 

look at managing their cash flow and trying to make a decision 

whether to bite off that big chunk for a large piece of equipment 

in their operations, this will enable them to make that decision 

much easier and move ahead and create the expansion of their operations through hiring maybe additional people in their own business and, of course, helping the entire economy in the area they 

are in. 

We feel it is a tremendously important provision. We think that 

HR 1678 needs to be enacted and I thank you kindly for your time 

and your attention today and just urge your success in getting this 

extended. I want to extend our support in anyway we can to help. 

Thank you. 

[Mr. Henderson’s testimony may be found in the appendix.] 

Chairwoman MUSGRAVE. Thank you very much for your testimony. I don’t know about you, Bob, but it seems like the witnesses 

are a long ways away. It is a great room but they are a long ways 

away. 

Ms. Jones, if you will pull the microphone as close as you can or 

get as close to it so we can hear you. We are looking forward to 

your testimony and thank you very much for being here. 

STATEMENT OF LINDA JONES, AREA RENT-ALLS 

Ms. JONES. Good afternoon, Chairman Musgrave and Congressman Beauprez. My name is Linda Jones. I own and operate Area 

rent-Alls which has two facilities in Westminster, Colorado with a 

total of 15 employees. I am also a past-Director on the board of the 

American rental Association which represents Colorado, Arizona, 

New Mexico, Utah and Wyoming. 

I want to thank you for the opportunity to testify before you here 

today on the impact of Section 179 of the federal tax code on rental 

businesses. I will summarize my testimony, but ask that the full 

extent of my remarks be included in the record. 

ARA’s membership includes more than 4,000 rental businesses 

with 6,200 locations and 960 suppliers. The majority of ARA’s 

members are small, family-owned and often multi-generational 

rental businesses. ARA members rent construction equipment and 

tools to contractors and home owners and party and event supplies 

to commercial and private clients. 

7

The entire rental industry generates more than $24 billion in annual revenue. Approximately 80 percent of the ARA members operate businesses that generate less than $1.5 million in annual revenues and 95 percent of ARA members are businesses that generate 

less than $3 million in annual revenue. 

The rental business is capital intensive. Rental businesses need 

equipment inventory to serve their customers. ARA estimates the 

total rental inventory in 2004 was valued at $34.1 billion (new 

equipment value). We believe the annual replacement cost for 

equipment in the rental industry ranges between $3.4 million and 

$6.2 billion. ARA estimates that more than 90 percent of our members reinvest less than $400,000 annually making them eligible for 

Section 179. 

Now, let me give you a little of my background. I am a secondgeneration rental store owner. My parents and grandparents started the general tool/construction rental store in 1962. I purchased 

Area Rent-Alls from my parents in 1986. At that time I added costumes rental to our inventory to increase income for business during slow seasons. I expanded to a second location in 1994 and at 

that time I added wedding and party equipment. Thus, my rental 

business reflects both costume and party rental and equipment 

rental for homeowners and contractors. 

In the 1986 Colorado recession, I managed the rental store with 

two employees. That year 13 rental stores in Colorado went out of 

business. I feel fortunate enough to have survived that economic 

downturn. Today I have 15 to 18 employees all of whom have families to support. I would like to add that I have never had to lay 

off any employees in spite of the rise and fall in our economy since 

1986. I would hope the reason for that is good management skills, 

which brings me here today to talk to you on Section 179. 

I would like to tell you how Section 179 has personally helped 

my business. In 2003 I was able to use $57,000 of the allowable expensing for purchasing equipment within Section 179. This actually 

equated to a tax savings for my business of approximately $7,360. 

That same year I incurred a 30 percent increase in health insurance premiums. 

This tax savings gave me the funds to maintain health insurance 

coverage for my employees. This fact alone is very significant for 

my employees and their families and for me as an employer to hire 

and retain good employees. 

Section 179 not only benefitted the health insurance for my employees but also helped me to add new inventory with updated 

safety features for my customers. In 2004 I was again able to use 

$64,000 of the allowable Section 179 expensing. Again, this savings, due to the availability of Section 179, was immediately reinvested into my employees’ healthcare benefits, and aided me to continue to update equipment in my rental inventory. 

This tax benefit allows me as a small business owner to continue 

to reinvest in the economy of my community by providing the public with the service of rental equipment. I also realize that all costs 

of maintaining and growing my business continue to escalate, the 

costs of maintaining my property and equipment, advertising, 

training and education for my employees of similar expenses. The 

8

tax benefit of Section 179 affords opportunity for continued growth 

for the right reasons to individuals involved in small business. 

I have not estimated the total amount of the $100,000 of Section 

179 allowable expensing for the year of 2005 but I know I have 

planned to use an increased level from previous years. The availability of Section 179 motivates me to continue to grow my business and is a key component within my business plan. 

It gives me the ability to react to opportunities for increased 

profits to expand my business. My goal is to combine my two rental 

stores into one larger location. This goal is achievable in a more 

reasonable time frame only because of the availability of Section 

179. It is a vital part of my planning for the future and for ensuring a bright and profitable future for my rental business. Section 

179 continues to be an instrumental business tool within the goals 

of Area Rent-Alls and I am sure for all small businesses. 

Madam Chairman and Congressman Beauprez, I and I am sure 

many small businesses would like to thank you for sponsoring HR 

1678. In summary, the current provisions of Section 179 help small 

businesses like mine compete by providing incentives to invest in 

new equipment. The option of expensing more of our investment 

dollars also allows us to manage cash flow and generate additional 

free cash allows us to expand our businesses and increase employment in our communities. 

Passing HR 1678 would be a positive step for small business. 

However, ARA strongly supports the position that the current Section 179 provisions should be made permanent. Small businesses 

like mine and so many other members of the American Rental Association need a simple, straightforward way of managing their tax 

exposure. 

I urge you to consider our position in your future deliberations 

on Section 179. Small business owners want to continue to be a 

part of the future of our local economies. The assistance you can 

give us to do so through your policy decisions will make a dramatic 

difference to our future. 

That concludes my remarks, Madam Chairman. Once again, 

thank you. I will be happy to answer any questions you or Congressman Beauprez have at this time. 

[Ms. Jones’ testimony may be found in the appendix.] 

Chairwoman MUSGRAVE. When you try to say Congressman and 

Beauprez— 

Ms. JONES. That is tough. 

Chairwoman MUSGRAVE. I have been stumbling, too. I understand, and I know him very well. 

Mr. BEAUPREZ. There ought to be a law. 

Chairwoman MUSGRAVE. Yes, there ought to be a law. Thank 

you. That is a great story of how resilient you have been and it is 

encouraging to hear about business growing sometimes under adverse situations. Thank you. 

Chairwoman MUSGRAVE. Our next witness is Mr. Craig Hau. 

Welcome. We are happy to have you here today. He is a commercial broker from The Group Inc. here in Fort Collins. 

9

STATEMENT OF MR. CRAIG HAU 

Mr. HAU. Thank you, Madam Chairman, Representative 

Beauprez. A little history on myself. I have been a resident of Fort 

Collins since 1972 and have been in the real estate business since 

1976 here in Fort Collins so I have had the opportunity to deal 

with a lot of small business owners and acquisitions of properties. 

Fortunately over the years I have been able to also invest and 

my experience with the tax code is mainly personal but also from 

partners that I am associated with that own other small businesses. I own part of and manage about 16 corporations and limited liability companies. There are a couple of construction companies but most of them are real estate investment groups. 

I manage the properties that are owned by those entities. We always check with our CPA to see what is the wise thing to do in 

capital investments. The code as it is written definitely inspires 

small business to invest in equipment. Personally I did that in ’03 

and ’04 and plan to continue that. 

I think that alone with acquisition of those items for construction 

companies and maintenance companies, you know, their tractors 

and trailers and mowers and trucks and that sort of thing. But also 

the part of the code that encourages small businesses to acquire 

their housing for their businesses, the offices and facilities because 

they escalate depreciation on qualified items for the permanent 

tenant improvement part of the premises. 

That part alone in ’04 we help broker. In fact, I had a couple of 

patent attorneys as partners. We went together and had an office 

building built. I was just kind of making a few notes but about $14 

million of the construction in seven buildings happened in ’04 because of the inspiration of that part of the code. A lot of people 

don’t think it has an effect but it really truly does. Those buildings 

are on Timberline Road by Low and Caribou if you would like to 

know where they are. 

I think the extension of the bill inspires small business to invest, 

inspires business people in the community from the legal, the financial, the medical people, all of them really, to spend that money 

and the ability to write it off up to a certain level. 

I should also mention the fairness. A lot of people don’t realize that whether you own two companies or 10 it is still $100,000 per 

individual through that ownership as it is passed down to your personal tax return. It is not a windfall, let us say, if you own more 

than one company. It is really fair across the board. 

It has made a difference. In Fort Collins I have personally seen 

it. I have partners that I am close to that also spent their capital 

and invested in equipment. We would very much like to see it extended. 

It makes a lot of sense. The bill was put together for a purpose. 

It was to expand the economy and create jobs. We have about a 

dozen employees and have increased that because of our expansion. 

It seems to be a very good thing. My personal experience with it 

is that it does work and it fulfills its mission. 

Other than if you have questions for myself, that’s pretty much 

my testimony. We appreciate all that you do and I think it makes 

great sense to extend it until they revise the entire tax code perhaps through that time. Thank you. 

10

[Mr. Hau’s testimony may be found in the appendix.] 

Chairwoman MUSGRAVE. Thank you for your testimony. It is interesting to hear what a difference it has actually made right here 

in Fort Collins. We appreciate that. There is a bill out there, HR 

1388, and that is sponsored by Congressman Wally Herger from 

California and that is the permanent bill. 

Quite frankly, what we are going to be able to do hopefully is 

through 2010 but it is very important because of the predictability 

and the certainty that you all need to work towards a permanent 

so we will be continuing that. 

Okay. Our next witness is Mr. Ron Lautzenheiser. We are happy 

to have you here today. 

STATEMENT OF MR. RON LAUTZENHEISER, BIG O TIRE 

Mr. LAUTZENHEISER. Madam Chair, you thought Beauprez was 

bad. Try Lautzenheiser. Good afternoon, Madam Chair, and Congressman Beauprez. 

Mr. BEAUPREZ. Well done. 

Mr. LAUTZENHEISER. My name is Ron Lautzenheiser. I would like 

to thank you for taking time to visit our city and to solicit input 

and ideas about job growth through the tax code. Specifically HR 

1678 as it relates to Section 179 of the code. I am the owner of two 

Big O Tires and Automotive Service Centers and two Grease Monkey Lube Centers located in Larimer and Weld counties. 

In addition to representing my own retail centers, I am representing the more than 550 independently owned Big O Tire and 

Automotive Centers, the 1,200 small businesses that are active in 

the Fort Collins Area Chamber of Commerce and the more than 50 

small businesses located within our new Urban Renewal Boundary 

in North Fort Collins. 

After spending 30 years in the world of the large corporations, 

I founded our first automotive center in 1996 and we expanded in 

2001, 2003 and 2005. Together the centers employ more than 50 

persons. Over the last nine years I have used government programs to assist in the start up of all of these businesses. Specifically the SBA 7(A) programs, the loan guarantees and, of course, 

Section 179 of the code. Without these important programs I would 

very likely not be in business today and would not be employing 

our more than 50 associates. 

The current tax law signed by President Bush in 2003 which increased the Section 179 capital equipment write-off limits to 

$100,000 in year one, was very instrumental in my decision to start 

two new automotive centers in years 2003 and 2005. In addition to 

opening new centers, we also acquired new capital equipment for 

use in our existing centers in 2004 and 2005. 

The purpose of new capital equipment allows me to produce a 

higher quality product or service usually with less repair and maintenance cost. It helps my business be more efficient and, therefore, 

more competitive in the market place. Section 179 help me defray 

the cost of capital acquisitions because immediate tax savings leads 

to immediate reinvestment. 

Extension of the current deduction limits to 2010 will help alleviate my personal concern about the timing of capital acquisitions. 

Opening a new center usually requires real estate acquisition and 

11

construction. This is a lengthy process which starts two to three 

years prior to a center opening. With the current law expiring in 

2007 it is probably already too late for me to open new centers in 

our area and utilize the current $100,000 deduction limit if it is allowed to expire. 

Fort Collins also has a new URA on the blighted North Side of 

our city. The URA is in year one of its 25-year life. The extension 

of Section 179 to year 2010 would greatly assist many of the 50 

plus small businesses located within the URA boundary who are 

trying to turn this blighted area of the city into a job growth area. 

Many of the 550 Big O Tire and Automotive Centers are currently making decisions about whether to purchase new capital 

equipment. The average new center purchase is $200,000 to 

$300,000 of capital and employs 10 to 15 associates. Section 179 deductions have a strong influence on these decisions. 

In conclusion, I would like to thank the Congresswoman and 

Congressman for their efforts in working towards the passage of 

1678. Raising capital, particularly at affordable rates, is one of the 

small businesses’ greatest challenges. It ranks right up there with 

the high cost of health care. In my work as a volunteer Fort Collins 

SBDC mentor to new franchise business owners, I see their ability 

to raise capital as one of their real hurdles and extension of 179 

will be of tremendous assistance to them as it will to all businesses. 

Again, my thanks to Chairperson Musgrave and Congressman 

Beauprez. Thank you. 

[Mr. Lautzenheiser’s testimony may be found in the appendix.] 

Chairwoman MUSGRAVE. Thank you for your excellent testimony. 

We have another interesting name here. Rob Pehkonen is here 

to testify. We are very happy to have you here and look forward 

to your testimony. 

STATEMENT OF MR. ROB PEHKONEN 

Mr. PEHKONEN. Thank you Congresswoman Musgrave and Congressman Beauprez. A little background on myself. I own a couple 

of different companies. I own some real estate. Then most people 

in Fort Collins kind of know me as the Maytag man. I own the 

Maytag store here in Fort Collins. The revision of Section 179 has 

been very instrumental in the growth of the Maytag store. 

My testimony is very, very simple. My company has tripled in 

dollar volume and doubled in the employees that I employ in the 

past 12 months due directly because of the revision of Section 179 

of the Internal Revenue Tax Code allowing small business to expense the full value of new capital equipment, furniture, computer, 

office equipment and other expenses incurred in open up three new 

retail appliance stores in the Colorado area. I am in favor very 

much, as I am sure we are all surprised, in HR 1678 extending the 

higher expensing limits up to $100,000 and an investment up to 

$400,000. 

I own and operate five appliance retail stores in Colorado. I have 

one in Fort Collins, one in Greeley, one in the Northglenn area, 

Lakewood, and then also down south at Southwest Plaza. If you 

had asked me 12 months ago, I only own two. I own the Fort Collins store and also the Greeley store. 

12

The current law signed by President Bush in 2003 was a very 

strong deciding factor that helped make it possible for me to undertake this major expense and expansion in my business. It helped 

reduce the high cost of adding three new retail locations in 2004 

and also 2005 and helped provide up-front additional cash flow by 

reducing my tax liability and in turn helping my business grow 

from 10 employees to currently 23 with a planned 28 by the end 

of the year. 

My appliance business is very much like many small businesses 

around the country. My company goal is very simple. It is ‘‘Depend 

on Us’’ taken as an extension of the Ol’Lonely repairman theme of 

dependable product at a cost effective price. My showrooms have 

all the product hooked up live and plugged in so my customers can 

check out the appliance in my showroom before they take it home 

to their home. 

It is very expensive to remodel a showroom, to have hot and cold 

running water by the washers, have drain lines so that we can actually do laundry in the showroom, power up all the equipment, 

and hook everything up live. It is very, very expensive. 

An average cost of a new showroom for me to add is about $150,000 per location. Simply stated, the revision of the tax code 

allowed me to expense more of these expenses in the year that I 

incurred the expense versus over the next five to often 37 plus 

years helping me directly grow here in Colorado. 

I use the Subcommittee to continue their backing of HR 1678 

and allow small business to grow, to allow our community to grow, 

and allow the economy to grow, and allow more people to be employed. I look forward to answering any questions that you have 

and helping you understand the importance of HR 1678 in my 

small business and many small businesses across the country. 

Thank you. 

[Mr. Pehkonen’s testimony may be found in the appendix.] 

Chairwoman MUSGRAVE. Thank you very much for that excellent 

testimony. 

Mr. Beauprez, do you have questions? 

Mr. BEAUPREZ. Thank you, Madam Chair. Yes, I do. First of all, 

thank you. A very sincere thank you to the witnesses. I think you 

really highlight what I suspicioned was the case and I referenced 

in my opening remarks, how important this was to small businesses. Frankly, I wouldn’t have imagined maybe all of the examples, especially the rental business, a perfect example but that candidly had escaped me. 

I had a very good friend who was in that business. I will say because you probably won’t that in addition to it being very important to your business, a very healthy well-stocked rental business 

is critical to the construction trade, the agricultural trade, on and 

on and on, to the whole business economy. On any given day his 

parking lot was probably as busy as any place in town so a perfect 

example of why this part of the tax code was very, very important. 

Thank you especially for your testimony. 

Rob, you made me think, you and Mr. Lautzenheiser as well. You 

both made me think how important it is that we deal with this 

issue soon. You were both talking about the planning you do, the 

staging. What would happen if we punted on this, if we said, ‘‘Well, 

13

we have some time. We don’t need to do it just this year.’’ Rob, how 

about you first of all. 

Mr. PEHKONEN. It is very difficult just because of what Ron an 

alluded to. There is one reason why I opened up one new appliance 

store in 2004 and two, which I will be very honest, was very, very 

difficult. A retail establishment to train employees, to saw cut 

floors, to acquire leases, to acquire government entities in order to 

allow us to remodel in that fashion took an awful lot of work to 

move things up very progressively so that I could make sure and 

comply with what needs to be complied to be able to exercise the 

option of Section 179. 

If you just punt on it and wait, it is very difficult for business 

to plan future growth when they are unsure on whether or not they 

are going to be able to take advantage of the tax code in Section 

179. A small business person that is unsure about something in the 

future usually is also going to pass on the opportunity of expanding 

their business. 

Mr. BEAUPREZ. Anything you want to add, Mr. Lautzenheiser? 

Mr. LAUTZENHEISER. I don’t know if I would totally vacate plans 

to grow just because of this particular code but it would certainly 

slow down. I would not open as many centers. Again, it goes back 

to the acquisition and timing and cost of capital. It is that simple. 

We went from 96 to 201 five years and then with 179 gave us the 

impetus to purchase an existing business and convert it to a Big 

O because of the write-off. 

The cost of the equipment was between $100,000 and $200,000 

so we could expense it immediately. It has significant impact and 

has caused us to move much quicker than we would have in 2003. 

2004 and 2005 we opened new centers and, of course, that is the 

longer planning process. The 179 if it expires in ’07 absolutely is 

affecting us right now as to what we will do absolutely. We will 

just stretch out our planning. That’s all. 

Mr. BEAUPREZ. Mr. Hau, if I might, did I hear you correctly that 

you utilized some of the provisions in the tax code here in Fort Collins built about $14 million of new real estate? 

Mr. HAU. That is correct. We do that obviously in conjunction 

with our clients, CPAs, but certain portions of the home improvements of buildings can be written off one time up to $100,000. They 

also qualified so that was a motivation. A majority of the people 

that built the office buildings in this one office park in ’04 to get 

the buildings built and get the seals acquired before the end of the 

year to get that tax write-off on those qualified portions of the 

building. 

Mr. BEAUPREZ. So you just answered a follow-up question I 

would have had which is what kind of buildings were these? These 

are office buildings? 

Mr. HAU. These are all office buildings. Medical and legal and 

psychiatrist and accountants and attorneys. 

Mr. BEAUPREZ. Would it be fair to assume then from what you 

just said that in addition to growing your own business in the partnerships you are involved in, it created a whole bunch of other jobs 

and stimulus to the local economy? 

Mr. HAU. Not only in my case but, I think, overall in the economy. My personal opinion is probably 75 or 80 percent of those 

14

buildings would not have been built if the incentive of the initial 

write-off was not there. 

Mr. BEAUPREZ. Can you guess how many people are working in 

those buildings now, or will? 

Mr. HAU. Oh, there has got to be 100. If you look at the construction part of it is pretty large. All the way through from the development of the land through the finalization of the buildings, all different aspects of the construction. Interestingly enough when you 

condominiumize a building it can also not just be one deduction per 

building. It is per condominium unit so the impact is pretty significant from the real estate side. At least the home improvement part 

of it. 

Mr. BEAUPREZ. And last, especially when you talk about it being 

in real estate, those buildings aren’t going away any time soon. It 

is a very permanent commitment to the local economy. 

Mr. HAU. Right. 

Mr. BEAUPREZ. I guess last, at least for right now, Madam Chair, 

another observation. I am listening to all of you and your businesses and I guess it is great if you expand and add employees and 

such. I am guessing you did that, though, in reaction to some growing demand. If I could just add a further observation about the tax 

bill that we did pass, we increased things like the child tax credit 

and immediately sent folks, moms and dads, a check. 

We immediately reduced the tax burden on everybody who pays 

taxes. We created—we didn’t create, they had already created. We 

just let a few dollars sit in people’s pockets that wouldn’t have otherwise been there so they could come to their rental shop, that they 

could come to the Maytag store, that they could exercise their own 

judgment in creating the demand to which I guess it is fair to say 

you all reacted to. 

It is funny how it actually does work out there if we put some 

good policy in place. I think you have highlighted very excellent 

policy and you have also highlighted why we really do need to do 

this sooner rather than later, whatever it is we are going to do. 

That would be my last comment. Again, from the Ways and Means 

Committee if you are unaware, I am going to guess that I am 

speaking very much on behalf of both the Chair and myself when 

I say if we had our druthers, we would make this permanent. 

Chairwoman MUSGRAVE. Absolutely. 

Mr. BEAUPREZ. We deal in kind of a funny world back there 

where we have to score things and you hear about how different 

legislation is scored. What that really means is what is the cost. 

We never measure the anticipated benefit of which you have testified to at some length, the benefit obviously. We estimate the cost 

of some legislation. 

In other words, the reduction of the federal treasury of a tax cut. 

We get tied up then in that funny budget mechanism when it is 

permanent, then the cost is almost incident the way we score taking into account no counterbalancing benefit. When you have only 

got a few billion, tens of billions, hundreds of billions, that is where 

we get put in our legislative box. 

That is our problem but it quickly becomes your problem. The 

only reason I went through that lengthy speech is so that maybe 

somebody reads in this testimony that we ought to change the way 

15

we do business back in Washington, too. With that I will yield 

back. 

Chairwoman MUSGRAVE. Here, here. That is so true. We need to 

have a realistic way of looking at how our tax policy changes behavior and changes revenue that is coming into the federal treasury. 

I just have to comment to all of you, this is the American dream, 

owning your own business, working hard, moving up, creating jobs 

and affecting those families, those employee’s families that work 

for you. 

I just wondered, Jim, if you could give us an idea of how many 

small businesses fail. 

Mr. HENDERSON. How many fail? 

Chairwoman MUSGRAVE. Yeah, how many fail. Do you know? A 

lot of people want to own their own business. What is the success 

rate? 

Mr. HENDERSON. We have done quite a bit of analysis and we 

look at it more from the start and the stopping of the business, not 

that they failed because a lot of businesses go out of existence not 

because they failed but because of circumstances. They may be a 

mom and pop shop and they want to retire so they just close it 

down. 

There are other situations like that where businesses cease to 

exist. But our data shows that typically when you look at small 

businesses that start in one year, after a four-year period 66 percent of those will still be in existence. Now, that is substantially 

higher than conventional wisdom. You always hear that 90 percent 

of them fail in the first year. Our data does not support that. 

Brian Headd in our economic shop has done extensive work in 

this area. He has been quite recognized for some of his fine work 

in this arena. We think we are beginning to get a better handle on 

the starting and the cessation of business operations with the data 

that he has been working with. 

Chairwoman MUSGRAVE. When I heard testimony from you folks, 

it occurred to me that success rate for businesses is going to be 

much higher if you can have a favorable tax environment. I would 

like you to comment on that. How does that help businesses when 

they are starting up? 

Mr. HENDERSON. You are absolutely right on the money. In fact, 

we just released a study last month that looked specifically at marginal tax rate and what affect that had on the willingness of people 

to enter into their own business operation or to cause them maybe 

to get out of business. 

The thing that it showed, surprise, surprise, if you got a lower 

marginal tax rate, more people were willing to take the risk, get 

in and try their idea. Conversely, the higher the tax rate, the more 

folks that found they were running into a situation maybe with 

some other troubles with their business operations and decided to 

call it quits rather than tough it out. 

What you do in terms of tax policy is critical to businesses. They 

look at a lot of different factors when they decide to open a business but tax policy is one that has a very important impact. As all 

the panel here who are on the streets and have testified, an exVerDate 0ct 09 2002 19:19 Dec 02, 2005 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 G:\HEARINGS\23282.TXT MIKE
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pensing provision that has been increased as this one has needs to 

stay at that level, if not increased. 

That’s one of the things that I asked when I called a number of 

small business consultants and accountants before coming here 

today. One of the things that was recommended was, you know, 

‘‘I’ve had three businesses,’’ one of the accountants said, ‘‘that have 

maxed.’’ This could be 500. There are always people that can even 

use a little bit more help. They said, ‘‘At the minimum make sure 

they understand how vital it is that this cannot go back to 

$25,000.’’ 

Chairwoman MUSGRAVE. Thank you very much. 

Ms. Jones, I really am intrigued by your resiliency and the story 

of the growth of your business. You did allude to the fact that because of this tax break you could pay for benefits for your employees. Could you comment on how this gives you more choice in your 

business? 

Ms. JONES. Well, by using the tax incentives, like I said, not only 

can I—you know, it is always a numbers game in business and you 

have to figure out what is the best for you. I think employees are 

the best part of the business anyway. Without my employees I 

don’t have a business. Like I kind of said, I need to be able to retain good employees. 

If I don’t have any kind of health insurance at all, they are going 

to go somewhere else. I actually kind of counsel a lot of my employees. They figure they are going to go somewhere else and they can 

maybe make a little more money somewhere else. When I show 

them what their benefits are to them and their families, then they 

stay. The almighty dollar is nice but when you have the welfare of 

your family to take care of, that is definitely help on that side. 

Chairwoman MUSGRAVE. Does anyone want to comment anymore 

on predictability or certainty in regard to business growth? 

Mr. HENDERSON. If I may, Madam Chairman. 

Chairwoman MUSGRAVE. Yes. 

Mr. HENDERSON. The Office of Advocacy has also done a study 

that looked at that. They found that predictability and permanence 

in the tax code is important but predictability is probably even 

higher so they can do the planning. That is one thing I heard loud 

and clear from our panel here. The length of time of the planning 

that they are doing, they are looking at ’07, ’08, ’09 for some of 

their operations. 

With the tax code if we don’t know what is going to happen for 

sure after ’07, it just creates this cloud. Once you get a cloud in 

front of it like that, it creates the uncertainty to make good decisions. By having that permanency, and particularly predictability 

in the tax code you are going to enable the small business community to do much, much better than they will if there is any uncertainty. I know you can’t eliminate all uncertainty but what you can 

do to reduce the degree of uncertainty would be monumental. 

Chairwoman MUSGRAVE. Thank you. Mr. Beauprez, anymore 

questions? 

Mr. BEAUPREZ. Less a question and maybe an observation again 

here. I think there is a perception out there in some quarters that 

if we give business, I would say, incentive, some say just a tax cut, 

but it works the same way, somehow that money kind of goes in 

17

their pocket or something. You buy a deeper down quilt for your 

bed. I guess if you are a down quiltmaker that is pretty good deal, 

too. 

What all of you have said is because of these tax incentives you 

have done exactly what I, of course, having been a business person 

before and understood you would do, you have invested it and you 

multiplied it and it magnifies. That is exactly how an economy gets 

going and how job growth works. 

This has been extremely valuable testimony and some real stories that I will be able to use and testimony I will be able to use 

when the Ways and Means Committee meets and we take up the 

issue of what do we do about the expensing and whether or not we 

can extend. Perhaps a miracle happens and we can make permanent this portion of the tax codes. 

I thank all of you for being here. Madam Chair, I applaud you 

for holding this hearing. The timing couldn’t be more perfect nor 

could the panel. Well done. 

Chairwoman MUSGRAVE. Thank you. I am encouraged by what 

this has meant to you and why this legislation is important. I 

thank you for your expertise and I applaud you for what you have 

done for the economy in Northern Colorado. This is where it is all 

taking place, where jobs are created. You are affecting our area in 

a very positive way and I want to thank you for taking time to be 

with us today because I am very well aware of how hard small 

business owners work. I thank you for your time. Thank you. This 

hearing is adjourned. 

[Whereupon, at 2:43 p.m. the Subcommittee was adjourned.]

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