The robotics industry received two favorable tax breaks in the recent Tax Cuts and Jobs Act (TCJA) that will likely help spur the development of this burgeoning technology. However, state and local governments are beginning to discuss taxing robots in order to replace taxes lost to automation and this could result in some additional costs for robot users.

The TCJA helps the robotics industry under two much-discussed provisions. First, businesses can now deduct 100 percent of the cost of equipment up front, rather than having to depreciate the cost over a period of up to seven years. This benefit is available to any equipment purchased for use in a business—it is not limited to investment in robotic equipment. The ability to immediately write off 100 percent of the investment might sway some businesses to make the decision to invest in robots to do the work that an employee can do, because a business will be able to deduct 100 percent of the cost of robotic equipment in the year of purchase. The resulting tax savings for the year might result in some businesses deciding to purchase robots rather than hiring workers. For example, let’s say that a business could either hire 20 workers for a total cost of $1,000,000 per year in total salary and benefits, or purchase a robotic system for $8,000,000 to perform the same task (not including the cost of any custom software, which is not 100 percent deductible in the year of purchase). Assuming the business is a pass-through entity, and its owners are in the top 37 percent federal tax bracket, the $8,000,000 investment which can be written off in the year the equipment is placed in service would generate a total tax savings worth nearly $3,000,000 to all of the owners in the first year. This 100 percent write-off is available until the end of 2024, at which point it begins to phase out. (Note that if the 100 percent deduction results in a net operating loss, there are limitations on the amount that may be deducted in subsequent years).