Tax Reform Boosting Industrial Capital Spending Say Some Electrical Distributors

Electrical distributors who responded to Electrical Wholesaling’s Top 200 survey were asked about the impact they’re seeing, if any, from the federal tax reform laws passed late last year. Some said they’re already seeing an increase in spending among customers that they attribute to effects of the tax reforms, most notably in the industrial market.

The survey asked them about both the effects of the Tax Cuts and Jobs Act (TCJA) on their own operations and on customer spending plans. On the customer side, the vast majority of those who responded to the question said they have not yet seen any impact on customer spending — 58 of the 75 respondents who answered the question — while 17 said they have already seen some impact.

Among those who haven’t seen an impact were some who attribute recent increases in capital spending to other factors. In the Atlanta market, Clarence Robie, president of B&S Electrical Supply Co., said most of the projects have been in the works since well before reforms were passed. “Current projects have been planned for years,” he said. “The threat of rising interest rates is responsible for more current construction activity than the federal tax cuts for 2018.”

Many pointed to an overall optimism among customers. “There has been an impact, but it is hard to quantify,” said Jeremy Welsand, CFO of Border States Electric, Fargo, ND. “Generally, businesses viewed the tax cuts as positive and allowed for more capital to be invested into the business.”

Likewise Richard Booth, electrical division manager for Coburn Supply Co., Beaumont, TX, hasn’t seen actual sales materialize. “Talk is around on spending, but have not seen new orders related to large capital expenditures,” he said.

Those who are seeing tangible increases in customer capital spending pointed to the industrial market. John Hanna at Fromm Electric in Reading, PA, sees plant expansions in the industrial segment showing some impact. Also in Pennsylvania, Matt Brnik, president of Schaedler Yesco Distribution in Harrisburg, said, “We are seeing renewed enthusiasm for industrial spending.”

John Kerkhove, president and CEO of Horizon Solutions, Rochester, NY, said his company is “expecting some improvement due to capital spending at industrial plant locations and machine builders.”

In the utility market, Rusty Batch of Tri-State Utility Products, Marietta, GA, said, “Some of our key customers are aggressively investing capital into their electric grids.”

Regarding their own businesses, most of the distributors who responded said the reforms had no impact on them directly but a significant number said it has had a positive impact. Of the 119 who answered this question, 67 saw no impact, 54 saw a positive impact and one distributor reported that his business has been negatively impacted by the change.

Laurence Heimrath, chairman of G&G Electric in New York City, said the accelerated depreciation aspects of the reform allowed him to invest in the company. “Deduction of full value of new computer system (Eclipse). Expensed out in 2018.”

Mark Winard, principal of NEDCO, Las Vegas, NV, said, “We have upgraded our fleet and are doing an office remodel.”

Rock Kuchenmeister, CEO of K/E Electric Supply, Mt. Clemens, MI, said, “Although we already have a strong capital reinvestment program, we are now investing with an ‘entrepreneurial’ vision,”

On the manufacturing side, the National Electrical Manufacturers Association (NEMA) released a statement this week on the results of its own survey that found 53% of electrical manufacturers who took part in the survey said the TCJA has already had a net positive impact on their businesses, while an additional 34% are waiting for full implementation before they can assess the benefits of the legislation.

Nearly one in three electrical manufacturers surveyed said they had already made investments in employee salaries and benefits, domestic employment, equipment, or research and development, NEMA said.

NEMA President and CEO Kevin Cosgriff pointed to three parts of the legislation that could be improved. “Electrical manufacturers identified three issues that, when resolved, will unlock the fullest benefits of the legislation,” Cosgriff said. “Specifically, a drafting error impacting the definition of qualified improvement property, base erosion anti-abuse tax, and global intangible low-taxed income would greatly benefit from clarifying language.”