Both the National Grocers Association and the Food Marketing Institute have expressed their support of legislation proposed on Capitol Hill to resolve the “retail glitch” in the Tax Cuts and Jobs Act (TCJA).
The TCJA included a provision providing businesses with 100 percent bonus depreciation, which intended to allow them to write off the full costs of short-lived investments immediately. Congress intended to help retailers invest in their businesses by the inclusion of this provision; however, some categories of business investment, most notably retail, restaurant and leasehold improvements together comprising a category called qualified improvement property, or “QIP,” were excluded from being eligible for 100 percent bonus depreciation due to a drafting error.
Because of this error, retailers making investments to improve the interiors of their stores now face a more restrictive cost recovery period—more than twice under the prior law—and do not qualify for the benefit intended by Congress.
The retail glitch has caused significant cash flow concerns and has prevented retailers from making important improvements to their stores.
The Senate bipartisan bill—the Restoring Investments in Improvements Act—was proposed by Sens. Pat Toomey (R-PA) and Doug Jones (D-AL) to resolve the glitch. (The bill’s co-sponsors included Sens. Joe Manchin [D-WV], Angus King [I-ME], Jeanne Shaheen [D-NH], Rob Portman [R-OH], John Thune [R-SD] and Pat Roberts [R-KS].)
“We thank Senators Toomey and Jones for bringing forward a bill to resolve an issue that has negatively impacted independent supermarkets across the country,” said NGA EVP Greg Ferrara. “The supermarket industry is a competitive marketplace operating on 1-2 percent profit margins and Main Street grocers deserve to be eligible for the full benefits of tax reform intended by Congress, including 100 percent bonus depreciation for qualified improvement property, so that they can make important investments in their stores. It is important to remember when independent supermarkets invest in themselves, those dollars spread to local contractors and provide local jobs, further benefitting the community at large.”
In the House, Reps. Jimmy Panetta (D-CA 20th District) and Jackie Walorski (R-IN 2nd District) led a group of bipartisan House members in introducing legislation to allow for immediate expensing of qualified improvements to supermarkets and grocery stores, as well as restaurants and other retail establishments. This bipartisan proposal addresses a drafting error in the Tax Cuts and Jobs Act that actually increased the cost of making these investments.
FMI’s Andrew Harig, senior director for sustainability, tax and trade, said, “FMI applauds the House’s introduction of this bill. This legislation will allow food retailers to take advantage of immediate expensing for improvements made to our members’ stores. These investments not only create jobs and economic activity in the communities served by our membership, they also enhance the consumer experience through modernization and technology.
“For the past year, many qualified improvements have been put on hold due to a drafting error in the Tax Cuts and Jobs Act that actually made these investments more expensive than before tax reform. Today’s bipartisan legislation is a needed corrective that provides for full expensing without imposing any new obligations on the Treasury.
“We encourage the House to take up this legislation as quickly as possible to help create certainty for food retailers throughout the United States.”