Retailers and restaurants are stepping up their push for Congress to fix a provision in President Trump’s tax law that they say is hurting their businesses.
Because of an apparent drafting error in the law, stores and restaurants have to write off the costs of their renovations over 39 years, instead of being able to write off the full costs immediately as Congress intended. Stakeholders say the error has caused some businesses to hold off on making improvements to their stores’ interiors.
Lawmakers in the House and Senate have introduced bipartisan legislation to fix the so-called retail glitch, but action on making corrections to the 2017 tax law doesn’t appear to be imminent. Business groups say they want to increase the pressure on lawmakers to act quickly.
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“We think we’re doing everything to ramp up the pressure on Congress to get this done,” said Dave Koenig, vice president for tax at the Retail Industry Leaders Association.
Stakeholders this week have taken new steps to pressure Congress to promptly act to address their concern.
The National Grocers Association and the Food Marketing Institute, which represent supermarkets and food wholesalers, held their annual fly-in this week and brought up the retail glitch Wednesday in Capitol Hill meetings with lawmakers and staff. Other trade groups have also held fly-ins on the issue in recent weeks.
Andy Harig, senior director for sustainability, tax and trade at the Food Marketing Institute, said that in their meetings on the Hill, his group hasn’t gotten pushback about fixing the issue. Instead, there have just been questions about the politics of getting a fix to through Congress.
“We think that’s a good sign that no one’s raising questions about making the fix itself,” he said.
Additionally, a group of more than 800 retailers, grocers, restaurants and trade groups sent a letter to congressional leaders on Monday, urging lawmakers to co-sponsor legislation that would fix the issue. Stakeholders said that the new letter has significantly more signers than past letters on the issue, showing that there’s a growing awareness among retailers and restaurants about the issue.
“At this point, the vast majority are aware of this problem,” said Rachelle Bernstein, vice president and tax counsel of the National Retail Federation. “They are being advised of the additional cost of their improvements.”
The problem pertains to the length of time over which retailers and restaurants have to deduct the costs of renovating their facilities.
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Prior to the tax law, retail stores and restaurants could generally write off the costs of renovations over 15 years.
Republicans included a provision in their tax law, known as “full expensing,” that allows businesses to immediately write off the full costs of their capital investments in an effort to encourage business investment and boost economic growth.
Lawmakers intended for “qualified improvement property,” such as interior improvements to restaurants and retail stores, to be eligible for full expensing, which is evident in the explanations in the tax law conference committee’s report.
But the text of the legislation didn’t assign a depreciation schedule to qualified improvement property. As a result, qualified improvement property defaults to needing to be written off over 39 years and is not eligible for full expensing.
“These tax glitches mean restaurants are investing less in equipment, materials, safety features and facilities, and that harms their long-term operations, hurts suppliers and builders who serve the industry and lessens the experience for employees and customers,” said National Restaurant Association spokesman Jeff Solsby.
Bipartisan groups of lawmakers offered bills to fix the issue in March, and the measures have been growing in co-sponsors since then. A number of new co-sponsors have been added to the bills this week.
The Senate version of the bill was introduced by Sens. Pat Toomey (R-Pa.) and Doug Jones (D-Ala.) and has more than 20 co-sponsors. The House version of the bill was introduced by Reps. Jimmy Panetta (D-Calif.) and Jackie Walorski (R-Ind.) and has more than 50 co-sponsors.
“It’s no surprise that so many Main Street businesses are speaking out in favor of this legislation,” Jones said in a statement to The Hill. “They are the backbone of our local economies and they should have the tools they need to stay competitive.”
The leading sponsors of the legislation are hopeful that the fix will get enacted.
“With such strong, bipartisan support for this commonsense fix, I’m optimistic we’ll get it across the finish line,” Walorski said.
Toomey said that since his bill has the support of seven Democrats and independents, “it appears we would have at least 60 votes in the Senate to fix this problem.”
Panetta said he anticipates the qualified improvement property issue “will be included in future discussions about fixing the 2017 tax bill.”
Despite the bipartisan interest in fixing the retail issue, it’s unclear if the House or Senate will act to make any fixes to the 2017 tax law anytime soon.
House Ways and Means Committee Chairman Richard Neal (D-Mass.) told reporters Wednesday that he thinks Congress is going to “have to address” a series of technical corrections, and that he would talk to the leaders of the Senate Finance Committee on the topic.
Many key Democrats are uninterested in pursuing fixes to the tax law unless bigger changes are also made to the 2017 measure. Democrats all voted against the tax law, arguing that it largely benefits rich people and corporations.
“[Republicans’] drafting errors are not minor ‘technical corrections’—they are major mistakes and misguided policies. If Republicans now want to undo the many mistakes they made during this recklessly hasty process, they need to be willing to negotiate on broader issues,” said Ashley Schapitl, a spokeswoman for Senate Finance Committee ranking member Ron Wyden (D-Ore.).
Michael Zona, a spokesman for Senate Finance Committee Chairman Chuck Grassley (R-Iowa), said Grassley wants to work with Democrats on fixing errors in the tax law but that Democrats have been unwilling to work with him.
“It’s disappointing that Democrats have refused to join this effort, seemingly only for political reasons, while their constituents bear the burden of errors in the tax code, the vast majority of which can easily be fixed,” Zona said.
Rohit Kumar, a former aide to Senate Majority Leader Mitch McConnell (R-Ky.) who now works at PwC, said that it could be easier to pass a fix to the retail glitch if it didn’t have to be packaged with other fixes to the tax law. However, the retail issue hasn’t yet reached the “escape velocity” needed to move through Congress without being part of a broader corrections package.
“It’s hard for me to see a near-term play on technicals,” he said.
Business groups say they’re trying to get as many co-sponsors for the standalone bills on the retail glitch as possible to help overcome hurdles to passage.
“If you have bipartisan momentum, you have a better chance of getting something done,” said Greg Ferrara, executive vice president of the National Grocers Association.