House lawmakers introduce bill to fix ‘retail glitch’ in tax law

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A pair of lawmakers has introduced bipartisan legislation to make a technical correction in the Tax Cuts and Jobs Act that has kept many stores and restaurants from renovating their facilities, after similar legislation was introduced last week in the Senate.

Reps. Jimmy Panetta, D-Calif., and Jackie Walorski, R-Ind., introduced the Restoring Investment in Improvements Act on Tuesday. The bill would enable restaurants and retailers to fully take advantage of a tax provision aimed at spurring more investment by businesses. Last week, Senators Pat Toomey, R-Pa., and Doug Jones, D-Ala., introduced the same bill in the Senate (see Senators introduce bill to correct glitch in tax law discouraging store and restaurant repairs).

The Tax Cuts and Jobs Act 2017 allowed businesses to immediately write off the costs associated with improving facilities, instead of having to depreciate the expenses over 15 years. An inadvertent drafting error required restaurants, retailers and other leaseholders to instead write off the expenses over a much longer period of 39 years, which has made the renovations more costly and stymied investment.

"The loss of immediate expensing has hurt many of our family-owned small businesses that are critical to the success of our Central Coast economies and communities," Panetta said in a statement. "The Restoring Investment in Improvements Act fixes that problem, known as the ‘retail glitch,’ by restoring the 15-year schedule for Qualified Improvement Property (QIP) and making these improvements eligible for immediate expensing as was originally intended. Our bill will allow restaurants, retailers and other businesses to make the improvements they need to keep their stores competitive and safe and plan for the future."

The Restoring Investment in Improvements Act would ensure the full cost of store, office, or building improvements could be immediately expensed as was originally intended when the Tax Cuts and Jobs Act was being drafted. The Joint Committee on Taxation has said the legislation would have no impact on the federal budget deficit.

"Tax reform has helped businesses across the country invest, expand, and hire more workers, but investments in interior improvements were inadvertently excluded from some tax benefits," Walorski stated. "The Restoring Investment in Improvements Act is a small but critical fix for our job creators, and technical corrections like this are a normal part of the process when Congress enacts major reforms. This bipartisan, commonsense bill will allow restaurants, retailers and other small businesses to unlock the full benefits of tax reform and continue driving our nation’s economic growth."

Last year, Republicans and Democrats agreed to fix another problem in the new tax law affecting agribusinesses known as the “grain glitch,” but so far the two parties have sparred over which provisions to include in a technical corrections bill. Democrats in blue states have asked for changes such as doing away with the limit on the state and local tax deduction, while Republicans have wanted to confine changes to technical matters such as the retail glitch.

A number of trade associations have been calling for a technical correction to be made, including the National Retail Federation, the National Restaurant Association, the Real Estate Roundtable, the Retail Industry Leaders Association and the American Institute of Architects.

The National Retail Federation said the glitch has been delaying millions of dollars in job-creating investments in stores and restaurants across the country. The NRF sent a letter Tuesday to members of the House urging them to cosponsor the Restoring Investment in Improvements Act and “allow retailers and restaurants to move forward with investments in their stores.”

The bipartisan legislation is being cosponsored by other lawmakers on both sides of the aisle, including Reps. Steven Horsford, D-Nev., Mike Kelly, R-Pa., Terri Sewell, D-Ala., George Holding, R-N.C., Susie Lee, D-Nev., Andy Barr, R-Ky., Joyce Beatty (D-OH), David McKinley, R-W.Va., Dina Titus, D-Nev., Mark Amodei, R-Nev., Lou Correa, D-Calif., and Kenny Marchant, R-Texas .

“After more than a year of uncertainty for retailers and restaurants caused by this tax bill error, we’re pleased to see momentum building in the House and Senate to finally resolve this issue,” NRF Senior Vice President for Government Relations David French said in a statement. “This unintended error is forcing many businesses to delay remodeling projects and decline opportunities to purchase or lease new retail locations that require improvements. Ultimately, that means fewer jobs and less economic development in local communities. We thank Representatives Panetta and Walorski for their bipartisan work to restore job-creating investments that have been put on hold, and we urge all members of the House to join them.”

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Tax reform Finance, investment and tax-related legislation Retail industry Tax breaks Small business