A tax reform error is harming restaurants and costing jobs

Anyone who texts has had an experience like this – right after hitting “send” you notice a mistake and realize your message says something very different than intended. No big deal, you immediately clarify the error and maybe blame your spellchecker. How much worse would it be, however, if you were stuck with your original text because it became enshrined in law?

The nation’s restaurants face a similar fate, with a mistake from the 2017 tax reform bill. A non-controversial change devised to help restaurants and other small businesses upgrade and expand their facilities wasn’t accurately written in the law’s text, and many businesses are now suffering an unpleasant surprise as they ready their 2018 tax returns.

{mosads}The specific issue relates to the tax treatment of certain renovations to business facilities. In IRS-speak, it’s known as “qualified improvement property,” or QIP. Before tax reform, half the cost of such renovations were immediately deductible, with a deduction for the other half spread evenly over 15 years. The Tax Cuts and Jobs Act aimed to help the economy grow by expanding the immediate deduction to 100 percent. But due to a drafting error, not only was QIP left out of the 100 percent deduction category but the 15-year depreciation period was more than doubled to 39 years. 

Word about the problem has gotten out, too, and it’s having a chilling effect on renovations and expansions across the industry. With depreciation now diluted over nearly four decades, many restaurateurs are finding it impossible to make such investments. For those who do, their cash and resources will be locked up, limiting the ability to make investments in their businesses and employees.

This is bad news for job creation, and it comes at the same time the Federal Reserve has expressed concern about a potential slowdown in the U.S. economy. America needs to be supporting growth and opportunity, but instead, this inadvertent error is leading to less spending on durable equipment and materials, reduced hiring of workers to staff new and improved locations and even delayed safety improvements, including fire sprinklers.

If the text isn’t revised, it will negatively affect those who enjoy dining out. Restaurateurs seeking to spruce up an establishment to attract more customers are holding off. Areas yearning for economic redevelopment – so often spearheaded by restaurants, retailers, and other Main Street businesses affected by the QIP error – will wait.

Unfortunately, there is no “undo” button for errors like this one. Even a tiny revision must pass Congress. Thankfully, that soon could happen. Not often is there strong support from both sides of the aisle in both the House and the Senate. But several lawmakers representing a bipartisan and bicameral block of support for the restaurant industry have recognized that small businesses, working families, and local economies will suffer if the QIP error is not remedied. Sens. Pat Toomey (R-Pa.) and Doug Jones (D-Ala.), alongside eight bipartisan colleagues, joined together to sponsor a bill in the Senate; and Reps. Jimmy Panetta (D-Calif.), Jackie Walorski (R-Ind.), and 12 other members of Congress have now agreed to introduce companion legislation in the House. 

This week more than 500 restaurant operators, organized by the National Restaurant Association, are travelling to Washington, D.C. to talk to lawmakers about their priorities. These leaders will ask their representatives to fix the QIP error. It’s the right thing to do – for restaurant and small business owners, employees, and Americans across the country.

Melvin Rodrigue is vice chairman of the National Restaurant Association in Washington, D.C. and president of Galatoire’s Restaurant in New Orleans.