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Retailers Fight for Tax Law Fixes That Would Make Store Remodeling More Affordable

The National Retail Federation is fighting for legislation that would help retailers remodel their stores without facing the heavy post-upgrade taxes that can keep them from doing so.

NRF called on the House of Representatives to pass two pending bills: H.R. 765, the Restaurant and Retail Jobs and Growth Act and H.R. 2510, which permits “bonus depreciation.”

The Restaurant and Retail bill would permanently allow retailers to write off remodeling costs and other store improvements over 15 years instead of the 39-year period standard for buildings.

The bonus depreciation bill would put a permanent provision in place that says retailers that make capital investments, including leasehold improvements, can deduct half of the upgrade costs right away and depreciate the balance over a period. The provision would also extend beyond just leased stores to include owned stores too.

If the new provisions become a permanent part of tax law, according to NRF, retailers would get a greater portion of tax benefits for businesses up front. For example, if a retailer spent $500,000 to expand its showroom, the current depreciation law would only allow the business to deduct $13,000 of the costs in the first year, with the depreciation spread over 39 years.

Together, the new bills would let that retailer deduct $250,000 from its taxes the first year and spread the remaining $250,000 over the next 14 years, making more money available for additional investment earlier on.

Both bills had been in place on a temporary basis—needing year-by-year renewal, but they expired in 2014.

The bills would not only reduce the taxes on much-needed store improvements, they would allow retailers to plan ahead as long-term planning has so far been challenging with the tax status up in the air every year.

“Retailers must update their stores every five to seven years to maintain customer interest,” NRF senior vice president of government relations David French wrote in a letter to the House. “Even when Congress extends the 15 year life for these improvements, the high after-tax cost of making these investments often delays much needed updates because retailers operate on very slim profit margins. Bonus depreciation provides a very important incentive for making these investments on the more rapid timetable that addresses competition in the marketplace, which helps boost economic growth.”

 

The House Ways and Means Committee approved the bills this week and they will now go before the full House for consideration.