Many restaurants and retailers have lost faith in Congress enacting a near-term fix to 2017 tax law error that prevents them from immediately writing off the costs of interior improvements.
Those businesses are starting to adjust to the current reality that they say has made much-needed renovations more costly and has stymied investment. But as time passes without a solution, and the window closes to file their 2018 tax returns, pressure on Congress will continue to build.
Rachelle Bernstein, vice president and tax counsel at the National Retail Federation, said that beginning in mid-2018 she started to see a slowdown in the planned remodeling activities of retailers.
“As we go into this year, we’re seeing that even more so,” she said. “I think people thought Congress was going to address this sooner than they have.”
Some trade groups and lobbyists thought the “retail glitch” fix could be attached to tax legislation that the House Ways and Means Committee is expected to vote on next week. But Chairman Richard Neal (D-Mass.) has indicated that the panel only plans to consider retirement and Internal Revenue Service-related measures.
When drafting the tax law, Republicans intended to allow businesses to immediately write off 100 percent of their expenses when improving locations, or moving into empty ones, through 2022. However, because they didn’t specify a recovery period for “qualified improvement property,” businesses have to write off those expenses over 39 years—leaving many worse off than they were under previous laws, according to trade groups.
“There are many, many errors and mistakes that were made with this 51-day rush to passing the biggest tax reform since ’86,” said Ways and Means member Ron Kind (D-Wis.). “We recognize as the majority we have a responsibility to make our country work, to make our economy work well. But my goodness, they really did put us in a hole.”
Ways and Means wants to take a deliberative approach and hold hearings before considering any future technical fixes or changes to the 2017 tax overhaul, Kind said. The full committee held a hearing March 27 to examine the law.
Expect Calls to Grow
Trade groups like the NRF and the National Restaurant Association, as well as large chains like Target Corp. and Best Buy Co., have been pressing Congress since last year to correct the error.
Some of the initial outcry about the error has died down, but that likely won’t last.
Most retailers file their income tax returns on Nov. 15, Bernstein said. The pressure on Congress to do something will build as that deadline nears, she said.
Last August, NRF and nearly 300 organizations and companies sought interim relief from the Treasury Department while they waited for Congress to act. They were unsuccessful, but Bernstein said more coordinated efforts may start to take shape around the same time this year.
Treasury and IRS officials have previously said fixing the mistake is up to lawmakers.
Liam Donovan, a principal at Bracewell LLP in Washington, said he thinks some of the lobbying activities have died down because people realize there aren’t any imminent vehicles to which lawmakers could attach the fix. The next must-pass legislation will come in September when lawmakers need to raise the debt ceiling, before Treasury runs out of money.
Bernstein agreed. “Congress is not going to take this up by itself, everything has to get packaged.”
Fixing the error isn’t solely a Republican initiative. Some Democrats, facing pressure from constituents, also support the correction.
Rep. Jimmy Panetta (D-Calif.) teamed up with fellow Ways and Means member Jackie Walorski (R-Ind.) to introduce a bill (H.R. 1869) March 26 to fix the mistake. Companion legislation in the Senate (S. 803) also has bipartisan support.
Panetta said he is optimistic that lawmakers will eventually address the error, though it is unlikely a fix will be included in the upcoming markup. Even so, “we’ll continue to push it forward as quick as we can,” he said.
But not everyone has lost faith in the issue getting taken up in next week’s committee vote.
“There’s a whole bundle of things we have to get done and I’m hoping that’s part of it,” Ways and Means member Mike Kelly (R-Pa.) said.
Even though the fix has some Democratic backers, lawmakers still have to overcome political hurdles to gain the broad support needed to address the problem. So far, most Democrats have been reluctant to make any fixes to the tax law, called the “Tax Cuts and Jobs Act,” because they weren’t involved in its passage.
“There’s still a tremendous amount of hurt feelings and heartburn over TCJA and the process by which it was passed,” Donovan said. The retail glitch “is being held out as an example of, ‘Well you guys did this in a flawed manner, and this is Exhibit A.’”