Independent Grocers Alongside Business Coalition Appeal to Treasury Department To Resolve Drafting Error in New Tax Law

August 23, 2018

Arlington, VA – The National Grocers Association (NGA), the national trade association representing the independent supermarket industry, and others in the business community sent a letter urging Treasury Secretary Steven Mnuchin to issue guidance resolving errors in the 2017 tax reform law related to depreciation rules. Nearly 300 businesses and associations signed onto the letter with independent grocers lending 160 signatories.

The tax law, which was enacted last December, included a provision known as “100% bonus depreciation” that allows businesses to immediately write off the full costs of short-lived investments. However, due to a drafting error in the bill, the language excludes some categories of business investment, most notably qualified improvement property, from being eligible for 100% bonus depreciation. This drafting error now defaults the write off period for qualified improvement property to periods as long as 39 years as opposed to the 15-year period that existed under the old tax code.

“The drafting error in the QIP provision causes improvements to buildings to be written off over 39 years instead of one year as contemplated under the Act. As a result, a taxpayer gets to write off only 2.5% of their improvement costs in the year the expenditures are made, and 97.5% over the remaining 38 years, instead of writing off 100% of the cost in the year the expenditures are made. This very large difference in the after-tax cost of making improvements is causing a delay in some store and restaurant remodeling projects, as well as causing some retailers to decline opportunities to purchase or lease new store locations that would require substantial improvements. These decisions not only deny communities the jobs associated with substantial construction projects, but also deny our communities the opportunity to bring new, permanent jobs to an otherwise abandoned store or to revitalize a declining mall,” the letter writes.

“America’s independent supermarkets are a vital part of the economy and it’s critically important that these business owners are afforded the opportunity to fully depreciate improvements made to stores as Congress originally intended. On behalf of a strong and unified independent supermarket industry, we urge the Treasury to resolve this drafting error as quickly as possible so that grocers can have the confidence to upgrade their stores, expand offerings, hire additional staff, which in turn helps to grow their local economies,” said Greg Ferrara, NGA executive vice president of advocacy, public relations and member services

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