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That's nuts, since a payroll should never be considered an asset. That's trying to put a material value on software, and doing it based on the salaries of devel

That's nuts, since a payroll should never be considered an asset. That's trying to put a material value on software, and doing it based on the salaries of developers is as crazy as valuing it in lines of code. The value of software could be based on something more realistic, like a percentage of actual revenue, but I suppose tech giants would be against that.

addaon 1y ago
> That's trying to put a material value on software, and doing it based on the salaries of developers is as crazy as valuing it in lines of code. Software clearly has material value. For software that is built, not bought, the company building it clearly values it exactly enough to pay the salaries of the software developers building it. What other estimate of its material value is better than the one that the company purchasing it is demonstrably willing to pay?
- yojo 1y ago
  The argument I’ve heard is it specifically makes investing in speculative software (new product lines, new features, etc) more expensive. If you’re doing new drug discovery at a bio-lab, treating all your failures as depreciating “assets” seems bonkers. The same seems true of much software development where the work product ends up thrown away.
  - ndriscoll 1y ago
    The answer to this seems obvious to me: let the company publish all code and documentation pertaining to failed experiments and release it into the public domain to be allowed to fully depreciate it immediately. If it is actually worthless, they should be happy to do so.
    - throwaway7783 1y ago
      As long as the same is held true about car designs that never went to production, drug design that were not deemed profitable etc. Why pick on just software?
      - ndriscoll 1y ago
        Yes, clearly the same reasoning applies to any copyright, patent, or trade secret (and we should stretch out the depreciation schedule to match the durations of those things. It follows that development of trade secrets would not be deductible. Perhaps a new category of escrowed expiring trade secrets could be created to make it deductible). We could all benefit from companies publishing research that didn't pan out, and it should come at little to no cost to them!
        throwaway7783 1y ago
        As much as I like this Utopia, this will unfortunately never happen in a capitalistic country.
    - jandrewrogers 1y ago
      That doesn’t follow. Code can contain extremely sensitive and/or valuable IP independent of the value of the code as an asset. Reduction to practice frequently fails to produce usable software.
      - ndriscoll 1y ago
        That's why I didn't just include code; if you produced valuable design docs as part of your work, that was part of your research too. I'm generally skeptical of the societal utility to offering any protections or special treatment for trade secrets though (the entire point of patents/copyright is to incentivize people to share these things; it's insane to also protect their secrecy), so that no doubt affects my thinking. If you want the deduction for having spent money on R&D that you didn't think was valuable, prove it by giving it up. If it's entangled in other secrets you don't want to share, you get no deduction. Seems fair to me.
        jandrewrogers 1y ago
        That is making assumptions that aren’t based in reality. Serious software R&D stopped relying on patents and copyrights years ago because they are effectively non-enforceable in many cases. A significant percentage of algorithm and foundational computer science R&D in software is now protected exclusively via trade secrets. There are no other practical options. This wasn’t always the case but all other forms of protection have steadily eroded over the last couple decades. Weaponizing the tax code because you have an ideological aversion to trade secrets doesn’t seem fair to me.
        ndriscoll 1y ago
        It's not really "weaponizing the tax code because of an ideological aversion"; it's more: * It makes sense to tax capital assets as such. * If companies do R&D and think the results are valuable enough to be kept secret, then obviously they're an asset. * Depreciation is because real-world assets actually require ongoing maintenance or become worthless over time, but information does not. * Finite-term IP grants (e.g. copyrights/patents) do become worthless over time, so a depreciation schedule makes sense. * Trade secrets never expire, so it doesn't make sense to depreciate them. If they never get out, they remain an asset forever. So their development shouldn't be deductible. If they do get out, the company could release all of their (now presumably useless) info on it then for the deduction from their development. The point about finding trade secrets to be dubious is that it seems natural to tax them as an everlasting capital asset (since that's what they are), and I don't see why we wouldn't do that since society doesn't eventually get the benefit of that knowledge, so incentivizing it runs counter to the purpose of IP law. Why would a knowledge economy provide a tax deduction for developing knowledge we don't eventually get?
  - grogers 1y ago
    How does this compare to a machine that breaks and is thrown away before its amortization is complete? For the machine can you immediately deduct the remaining amount or is it required to continue to spread the value over the original time period? I would imagine software that is thrown away should be similar?
    - ensignavenger 1y ago
      Generally speaking, yes, you can immediately deduct the non depreciated value. Most machines will be scraped, giving them a "scrape value". You would immediately deduct the difference. In fact, sometimes when you dispose of an asset, you get more for the scrape than you have left in depreciation- and you have to take that difference as a profit.
      - andrewlgood 1y ago
        For clarity, it is “scrap value”
  - rtpg 1y ago
    I don't get this. You speculative spend 1 million dollars on a new thing. It fails. In one universe you get to deduct 1M from your profit in year 1. In another you get to deduct 1M from your profit, but over 5 years. I understand the pain for small companies and it's a strain on cash flow, but for larger companies with "real" revenue streams and profitability is this that much worse? The cynical thing might be that this helps out big corps by preventing smaller corps from spending their way to success.
    - jonfw 1y ago
      It increases the real cost of engineers. The government is keeping that money interest free, which means the company is losing the time value of money. In addition, it gives companies less flexibility to manipulate their tax burden and cash flow, which makes engineering a less appealing investment to the bean counter.
    - kfajdsl 1y ago
      Yes, this hurts smaller companies with less capital/cash flow more than larger companies.
- throwaway7783 1y ago
  The price at which it sells the said software? Aka profits after expenses?
  - addaon 1y ago
    > The price at which it sells the said software? Aka profits after expenses? A vanishingly small percentage of software is sold.
    - throwaway7783 1y ago
      If we are being pedantic, sold or rented. I think the issue is on how the concept asset depreciation is applied blindly, as if dev salaries every year is the asset value every year. Unlike other asset classes, there is no easy to way value software beforehand, because you are not buying it from some market.
- nolok 1y ago
  By that logic so does an accounting book by an accountant, so does an inventory log by a factory hand, ...
- epistasis 1y ago
  > software that is built, not bought, the company building it clearly values it exactly enough to pay the salaries of the software developers building it Even in the absence of the Trump tax rule, a software company values the software they are building a lot more in financial terms than the cost of building it. Any project where value=cost should be cut, when the value is taking into account the value it brings to the rest of the company. This is the entire point of the business, after all: take labor, land, and capital and make something that's worth a lot more to the world than the sum of the components.
  - nikkwong 1y ago
    You're advertising your rose-colored glasses strongly, my friend. In a perfect world, of course—you're correct. But hiring, project management, and resource allocation are messy endeavors, so your point only rings true under ideal circumstances. The real effect this will have on industry is a chilling effect on hiring as businesses now have to risk-mitigate because of the additional taxation burden. Further, I see this hurting small and less-well resourced companies relatively more so, as they now need to be more scrupulous over hiring.
    - epistasis 1y ago
      Not at all, this is a fundamental difference in pricing and costs. The value of an asset is its price, not its cost. When a firm sets out to buy something for X from a different firm, they value it at X. When they build something with internal resources for a cost of Y, they do not value that asset at its cost Y.
- PaulDavisThe1st 1y ago
  It's not a question of what its material value is. It's a question of whether it is a capital expense that is required to be amortized over 5 or 15 years, or a regular expense that can be deducted in the year in which it is incurred.
- fuzztester 1y ago
  how about all the projects that fail all over the world, all the time? what is the material value of those?
narag 1y ago
That's trying to put a material value on software, and doing it based on the salaries of developers is as crazy as valuing it in lines of code. I'm not sure if depreciation is the same concept as we call amortización in my country: capital that counts as investment instead of expenses because you're expected to keep extracting value from it over the years, so you can't get a deduction for the whole expense when you first pay for it. If that's what this is about, it's absurd not for the reason you say (salaries are not a bad proxy for value, since you expect the profit will be greater) but because you'll probably keep paying for maintenance and evolving the software.
- jameshart 1y ago
  Exactly. We would love software development to be as simple as: you pay $1m to engineers to develop a software machine; you now have a $1m software machine that you can pay nonengineers to operate and crank out revenue. In practice software machines need constant tending and operation by engineers in order to keep them pumping out money. In the context of live software systems, a lot of software engineering - even engineering that involves innovation and creative research and problem solving - is done in service of making the machine continue to operate; it is operational expense. It’s like: Buying some filing cabinets is clearly a capital expenditure. But paying an office administrator to come up with and keep modifying the filing system you use in those filing cabinets to make sure it continues to serve your business is not capital investment, it’s business operational costs.
- amanaplanacanal 1y ago
  If you buy a building, it is a capital expense that depreciates over years, even though you absolutely have to keep paying for maintenance. Why should software be different?
  - convolvatron 1y ago
    if I pay a bunch of employees to take the cloth I buy and cut and sew into shirts, that's an expense some directly out of my revenue and isn't taxed as profit or forced to be amortized. Why should software be different?
jldugger 1y ago
> That's trying to put a material value on software, and doing it based on the salaries of developers is as crazy as valuing it in lines of code. We all do this at the conclusion of every successful job interview. And performance review. And budget review. IMO it's a reasonable floor on the value engineers produce: if you produced an asset worth less than your salary you should be concerned for your career.
- pc86 1y ago
  On what time scale? In a year, sure. But there are certainly days (weeks?) where the actual value produced by any one engineer is zero, or negative. This whole discussion is sort of orthogonal to the real point, though. The state (or the IRS, or Congress, or whatever) has decided that for some reason, if Jim gets paid $100k his boss can deduct $100k in expenses, but if Jane gets paid $100k her boss can only deduct $20k, because she's typing different things into a different box the computer. This is a categorically stupid thing to assert. It's a stupid thing to say and it's a stupid thing to believe. Payroll is an immediate cost, paying for the development of software is not remotely the same thing as purchasing a capital asset, and this is exactly what we get when we keep electing nonagenarian plutocrats to office year after year, decade after decade, who think the internet is a series of tubes.
  - jldugger 1y ago
    > On what time scale? In a year, sure. But there are certainly days (weeks?) where the actual value produced by any one engineer is zero, or negative. Well, that's what I had in mind, but the concept is why agile focuses on shipping early and often. Well, mostly it's to get in more feedback iterations, but engineer hours are not immune to time-value of money analysis. > This is a categorically stupid thing to assert. It's a stupid thing to say and it's a stupid thing to believe. Payroll is an immediate cost, paying for the development of software is not remotely the same thing as purchasing a capital asset But it's also not like paying a janitor to clean toilets and empty wastebins where we know there's no residual value accruing to the employer. Companies do buy and sell intellectual property in the form of copyrighted code, and in the form of patents. Heck, ARM basically makes a living licensing out the cores it designs. This obviously isn't perfect and the disparate impact has unintended consequences that could make things worse overall, but the accusations against the senate are a non-sequitor given the power of the purse lies in the House.
mbesto 1y ago
> That's nuts, since a payroll should never be considered an asset. That's because it's not "a payroll". When a payrolled resource builds a combustion engine that powers the office where the rest of the payrolled resources work every day and that engine lasts 15 years, then its a very clearly a capital expense and an asset.
- procaryote 1y ago
  Under these rules no. If the "machine" is software, payroll is considered a capital expense and an asset. If it's an actual machine, payroll for building it is fully deductible, like most other payroll. Software used to work like other payroll until fairly recently. If you want to understand this figure out why that changed and what the actual motivation behind it was
  - kgwgk 1y ago
    > If it's an actual machine, payroll for building it is fully deductible, like most other payroll. Not if the machine is used as an integral part of manufacturing, production, or extraction, or an integral part of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services by a person engaged in a trade or business of furnishing any such service, or is a research or storage facility used in connection with any of the foregoing activities.

addaon 1y ago

> That's trying to put a material value on software, and doing it based on the salaries of developers is as crazy as valuing it in lines of code. Software clearly has material value. For software that is built, not bought, the company building it clearly values it exactly enough to pay the salaries of the software developers building it. What other estimate of its material value is better than the one that the company purchasing it is demonstrably willing to pay?

yojo 1y ago
The argument I’ve heard is it specifically makes investing in speculative software (new product lines, new features, etc) more expensive. If you’re doing new drug discovery at a bio-lab, treating all your failures as depreciating “assets” seems bonkers. The same seems true of much software development where the work product ends up thrown away.
- ndriscoll 1y ago
  The answer to this seems obvious to me: let the company publish all code and documentation pertaining to failed experiments and release it into the public domain to be allowed to fully depreciate it immediately. If it is actually worthless, they should be happy to do so.
  - throwaway7783 1y ago
    As long as the same is held true about car designs that never went to production, drug design that were not deemed profitable etc. Why pick on just software?
    - ndriscoll 1y ago
      Yes, clearly the same reasoning applies to any copyright, patent, or trade secret (and we should stretch out the depreciation schedule to match the durations of those things. It follows that development of trade secrets would not be deductible. Perhaps a new category of escrowed expiring trade secrets could be created to make it deductible). We could all benefit from companies publishing research that didn't pan out, and it should come at little to no cost to them!
      - throwaway7783 1y ago
        As much as I like this Utopia, this will unfortunately never happen in a capitalistic country.
  - jandrewrogers 1y ago
    That doesn’t follow. Code can contain extremely sensitive and/or valuable IP independent of the value of the code as an asset. Reduction to practice frequently fails to produce usable software.
    - ndriscoll 1y ago
      That's why I didn't just include code; if you produced valuable design docs as part of your work, that was part of your research too. I'm generally skeptical of the societal utility to offering any protections or special treatment for trade secrets though (the entire point of patents/copyright is to incentivize people to share these things; it's insane to also protect their secrecy), so that no doubt affects my thinking. If you want the deduction for having spent money on R&D that you didn't think was valuable, prove it by giving it up. If it's entangled in other secrets you don't want to share, you get no deduction. Seems fair to me.
      - jandrewrogers 1y ago
        That is making assumptions that aren’t based in reality. Serious software R&D stopped relying on patents and copyrights years ago because they are effectively non-enforceable in many cases. A significant percentage of algorithm and foundational computer science R&D in software is now protected exclusively via trade secrets. There are no other practical options. This wasn’t always the case but all other forms of protection have steadily eroded over the last couple decades. Weaponizing the tax code because you have an ideological aversion to trade secrets doesn’t seem fair to me.
        ndriscoll 1y ago
        It's not really "weaponizing the tax code because of an ideological aversion"; it's more: * It makes sense to tax capital assets as such. * If companies do R&D and think the results are valuable enough to be kept secret, then obviously they're an asset. * Depreciation is because real-world assets actually require ongoing maintenance or become worthless over time, but information does not. * Finite-term IP grants (e.g. copyrights/patents) do become worthless over time, so a depreciation schedule makes sense. * Trade secrets never expire, so it doesn't make sense to depreciate them. If they never get out, they remain an asset forever. So their development shouldn't be deductible. If they do get out, the company could release all of their (now presumably useless) info on it then for the deduction from their development. The point about finding trade secrets to be dubious is that it seems natural to tax them as an everlasting capital asset (since that's what they are), and I don't see why we wouldn't do that since society doesn't eventually get the benefit of that knowledge, so incentivizing it runs counter to the purpose of IP law. Why would a knowledge economy provide a tax deduction for developing knowledge we don't eventually get?
- grogers 1y ago
  How does this compare to a machine that breaks and is thrown away before its amortization is complete? For the machine can you immediately deduct the remaining amount or is it required to continue to spread the value over the original time period? I would imagine software that is thrown away should be similar?
  - ensignavenger 1y ago
    Generally speaking, yes, you can immediately deduct the non depreciated value. Most machines will be scraped, giving them a "scrape value". You would immediately deduct the difference. In fact, sometimes when you dispose of an asset, you get more for the scrape than you have left in depreciation- and you have to take that difference as a profit.
    - andrewlgood 1y ago
      For clarity, it is “scrap value”
- rtpg 1y ago
  I don't get this. You speculative spend 1 million dollars on a new thing. It fails. In one universe you get to deduct 1M from your profit in year 1. In another you get to deduct 1M from your profit, but over 5 years. I understand the pain for small companies and it's a strain on cash flow, but for larger companies with "real" revenue streams and profitability is this that much worse? The cynical thing might be that this helps out big corps by preventing smaller corps from spending their way to success.
  - jonfw 1y ago
    It increases the real cost of engineers. The government is keeping that money interest free, which means the company is losing the time value of money. In addition, it gives companies less flexibility to manipulate their tax burden and cash flow, which makes engineering a less appealing investment to the bean counter.
  - kfajdsl 1y ago
    Yes, this hurts smaller companies with less capital/cash flow more than larger companies.
throwaway7783 1y ago
The price at which it sells the said software? Aka profits after expenses?
- addaon 1y ago
  > The price at which it sells the said software? Aka profits after expenses? A vanishingly small percentage of software is sold.
  - throwaway7783 1y ago
    If we are being pedantic, sold or rented. I think the issue is on how the concept asset depreciation is applied blindly, as if dev salaries every year is the asset value every year. Unlike other asset classes, there is no easy to way value software beforehand, because you are not buying it from some market.
nolok 1y ago
By that logic so does an accounting book by an accountant, so does an inventory log by a factory hand, ...
epistasis 1y ago
> software that is built, not bought, the company building it clearly values it exactly enough to pay the salaries of the software developers building it Even in the absence of the Trump tax rule, a software company values the software they are building a lot more in financial terms than the cost of building it. Any project where value=cost should be cut, when the value is taking into account the value it brings to the rest of the company. This is the entire point of the business, after all: take labor, land, and capital and make something that's worth a lot more to the world than the sum of the components.
- nikkwong 1y ago
  You're advertising your rose-colored glasses strongly, my friend. In a perfect world, of course—you're correct. But hiring, project management, and resource allocation are messy endeavors, so your point only rings true under ideal circumstances. The real effect this will have on industry is a chilling effect on hiring as businesses now have to risk-mitigate because of the additional taxation burden. Further, I see this hurting small and less-well resourced companies relatively more so, as they now need to be more scrupulous over hiring.
  - epistasis 1y ago
    Not at all, this is a fundamental difference in pricing and costs. The value of an asset is its price, not its cost. When a firm sets out to buy something for X from a different firm, they value it at X. When they build something with internal resources for a cost of Y, they do not value that asset at its cost Y.
PaulDavisThe1st 1y ago
It's not a question of what its material value is. It's a question of whether it is a capital expense that is required to be amortized over 5 or 15 years, or a regular expense that can be deducted in the year in which it is incurred.
fuzztester 1y ago
how about all the projects that fail all over the world, all the time? what is the material value of those?

narag 1y ago

That's trying to put a material value on software, and doing it based on the salaries of developers is as crazy as valuing it in lines of code. I'm not sure if depreciation is the same concept as we call amortización in my country: capital that counts as investment instead of expenses because you're expected to keep extracting value from it over the years, so you can't get a deduction for the whole expense when you first pay for it. If that's what this is about, it's absurd not for the reason you say (salaries are not a bad proxy for value, since you expect the profit will be greater) but because you'll probably keep paying for maintenance and evolving the software.

jameshart 1y ago
Exactly. We would love software development to be as simple as: you pay $1m to engineers to develop a software machine; you now have a $1m software machine that you can pay nonengineers to operate and crank out revenue. In practice software machines need constant tending and operation by engineers in order to keep them pumping out money. In the context of live software systems, a lot of software engineering - even engineering that involves innovation and creative research and problem solving - is done in service of making the machine continue to operate; it is operational expense. It’s like: Buying some filing cabinets is clearly a capital expenditure. But paying an office administrator to come up with and keep modifying the filing system you use in those filing cabinets to make sure it continues to serve your business is not capital investment, it’s business operational costs.
amanaplanacanal 1y ago
If you buy a building, it is a capital expense that depreciates over years, even though you absolutely have to keep paying for maintenance. Why should software be different?
- convolvatron 1y ago
  if I pay a bunch of employees to take the cloth I buy and cut and sew into shirts, that's an expense some directly out of my revenue and isn't taxed as profit or forced to be amortized. Why should software be different?

jldugger 1y ago

> That's trying to put a material value on software, and doing it based on the salaries of developers is as crazy as valuing it in lines of code. We all do this at the conclusion of every successful job interview. And performance review. And budget review. IMO it's a reasonable floor on the value engineers produce: if you produced an asset worth less than your salary you should be concerned for your career.

pc86 1y ago
On what time scale? In a year, sure. But there are certainly days (weeks?) where the actual value produced by any one engineer is zero, or negative. This whole discussion is sort of orthogonal to the real point, though. The state (or the IRS, or Congress, or whatever) has decided that for some reason, if Jim gets paid $100k his boss can deduct $100k in expenses, but if Jane gets paid $100k her boss can only deduct $20k, because she's typing different things into a different box the computer. This is a categorically stupid thing to assert. It's a stupid thing to say and it's a stupid thing to believe. Payroll is an immediate cost, paying for the development of software is not remotely the same thing as purchasing a capital asset, and this is exactly what we get when we keep electing nonagenarian plutocrats to office year after year, decade after decade, who think the internet is a series of tubes.
- jldugger 1y ago
  > On what time scale? In a year, sure. But there are certainly days (weeks?) where the actual value produced by any one engineer is zero, or negative. Well, that's what I had in mind, but the concept is why agile focuses on shipping early and often. Well, mostly it's to get in more feedback iterations, but engineer hours are not immune to time-value of money analysis. > This is a categorically stupid thing to assert. It's a stupid thing to say and it's a stupid thing to believe. Payroll is an immediate cost, paying for the development of software is not remotely the same thing as purchasing a capital asset But it's also not like paying a janitor to clean toilets and empty wastebins where we know there's no residual value accruing to the employer. Companies do buy and sell intellectual property in the form of copyrighted code, and in the form of patents. Heck, ARM basically makes a living licensing out the cores it designs. This obviously isn't perfect and the disparate impact has unintended consequences that could make things worse overall, but the accusations against the senate are a non-sequitor given the power of the purse lies in the House.

mbesto 1y ago

> That's nuts, since a payroll should never be considered an asset. That's because it's not "a payroll". When a payrolled resource builds a combustion engine that powers the office where the rest of the payrolled resources work every day and that engine lasts 15 years, then its a very clearly a capital expense and an asset.

procaryote 1y ago
Under these rules no. If the "machine" is software, payroll is considered a capital expense and an asset. If it's an actual machine, payroll for building it is fully deductible, like most other payroll. Software used to work like other payroll until fairly recently. If you want to understand this figure out why that changed and what the actual motivation behind it was
- kgwgk 1y ago
  > If it's an actual machine, payroll for building it is fully deductible, like most other payroll. Not if the machine is used as an integral part of manufacturing, production, or extraction, or an integral part of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services by a person engaged in a trade or business of furnishing any such service, or is a research or storage facility used in connection with any of the foregoing activities.