The Devil’s in the Details – Tax Reform’s Technical Corrections

March 20, 2018

By: Molly Pfaffenroth, NGA Senior Manager of Government Relations

Late last year, Congress passed a once-in-a-generation tax reform legislation, which included many positive provisions that will help independent supermarkets hire additional staff, expand offerings and upgrade their stores, as well as provide long-awaited tax relief.  NGA fought tirelessly to ensure the independent supermarket industry would experience the full benefits of tax reform just as much as other businesses.

However, as with any major piece of legislation signed into law, the devil is in the details and an unintended drafting error has caused harm to retailers. Specifically, Section 168 of the new tax code contains a drafting error that would prevent retailers from receiving Congress’ intended benefit of 100% bonus depreciation for qualified improvement property.

If Congress does not fix the issue, retailers will not only be ineligible for the 100% bonus depreciation benefit, which was a huge win for the independent grocery industry because it was intended to help retailers remodel and improve their stores, but they will also no longer be eligible for any bonus depreciation. A provision that was intended by Congress to help retailers invest in their businesses will end up harming them.

Section 168 of the old tax law had three individual categories of qualified improvement property: leasehold improvement property, retail improvement property, and restaurant improvement property. Each category had a 15-year Modified Accelerated Cost Recovery System (MACRS) recovery period, meaning property could depreciate over the course of 15 years.

To simplify the tax code, tax writers combined the three above categories into one category called “qualified improvement property” in the new bill and meant to designate it with a 15-year recovery period. The intent to designate this 15-year recovery period was explicitly stated in the conference agreement. However, when the final bill was written, the 15-year recovery period was accidentally omitted from the text by tax writers, and the recovery period then defaulted to 39 years.

This omittance is a serious mistake because in order to benefit from 100% bonus depreciation, there must be a MACRS recovery period of 20 years or less.

The drafting error is considered a true technical correction and there will be no cost associated with fixing it because the cost for the intended provision was already taken into account when the bill was drafted. NGA is a member of a strong coalition of retail, restaurant, and business organizations lobbying Congress to include a fix for the drafting error in upcoming legislation.

Earlier this month, NGA sent a letter to Congressional leadership, as well as to Members of Congress on the House Ways and Means and Senate Finance Committees, urging them to provide a fix for the drafting error as soon as possible. CLICK HERE to read the letter.

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