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Tax Typo Wreaks Havoc on Retailers’ Renovation Plans

Right now, it’s hard to think of a single retailer that’s not currently in the midst of right-sizing, remodeling or relocating its physical stores in an effort to maximize the return in their four walls. So it’s a particularly bad time for the tax man to make store renovations harder—and more expensive.

But that’s exactly what’s happened thanks to a typo in the new tax code.

Retail groups and restaurant leaders have been lobbying Congress to fix a part of the federal tax reform law that was supposed to provide relief for expenses related to remodels. As written, however, these businesses will have to pay more in taxes rather than less.

The fight isn’t over whether a mistake was made or not. Apparently, the government has acknowledged the error but it has not taken steps to correct it.

“The delay in correcting these provisions has caused economic hardship for some retailers and restaurants and is also delaying investments across the economy,” the Retail Industry Leaders Association, National Retail Federation, NRF’s National Council of Chain Restaurants, and other groups reportedly wrote in a letter to Congress.

Rather than depreciating store-related construction and improvements in one year, the law states the depreciation must take place over 39 years. The result, according to Bloomberg, is companies are paying twice the taxes they should be.

Finding a representative to lend support to the revision is proving challenging—and even then, the groups are concerned that politics will get in the way.

“The political issue is when will they able to get a bill moving that can include these fixes?” Rachelle Bernstein, tax counsel for the NRF, told Bloomberg. “At this point, what legislation can make it through both houses of Congress?”

The groups representing the affected businesses contend that as long as the error is left unchecked, it will serve to postpone necessary store updates and even stunt job growth given that fewer new establishments are likely to open.

The issue over renovations isn’t the only problem in the tax code hampering retail businesses. It also carries “a retroactive tax increase on businesses that are in loss positions and already facing liquidity issues,” the letter noted. “This timing difference is critical to cash-strapped businesses that were counting on the carryback to finance continuing operations as well as investments needed to revitalize their businesses.”