Trade groups representing the retail and restaurant industries are asking Congress to make several technical corrections to the Tax Cuts and Jobs Act, warning that some of the mistakes in the hastily drafted legislation could cost the industries millions of dollars.
The technical corrections relate to provisions of last December’s tax overhaul involving depreciation and net operating loss carrybacks.
Under the Tax Cuts and Jobs Act, remodeling and other improvements to stores or restaurants were supposed to be fully depreciated in the first year the work is performed. Instead, a mistake in the legislative language requires the depreciation to be done over the course of 39 years. Congressional officials have conceded that the 39-year requirement is a drafting error but haven’t yet corrected the mistake.
“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, the National Retail Federation, the NRF’s National Council of Chain Restaurants, and other trade groups wrote in a letter last week to members of the House and Senate tax-writing committees: the House Ways and Means Committee and the Senate Finance Committee.
“This very large difference in the after-tax cost of making improvements is causing a delay in some store and restaurant remodeling projects, as well as causing some retailers to decline opportunities to purchase or lease new store locations that would require substantial improvements,” said the letter. “These decisions not only deny communities the jobs associated with substantial construction projects but also deny our communities the opportunity to bring new, permanent jobs to an otherwise abandoned store or to revitalize a declining mall.”
A separate error in the far-reaching legislation got the effective date of carryback eligibility incorrect, leading to “a retroactive tax increase on businesses that are in loss positions and already facing liquidity issues,” according to the letter. “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.”
The staff of Congress’s Joint Committee on Taxation has been working on a set of technical corrections for the Tax Cuts and Jobs Act since its passage. Thomas Barthold, chief of staff of the Joint Committee said during a tax conference in New York in April he hopes to have it in legislative form by the end of this year (see Congressional staff aims to finish technical corrections to tax reform bill). However, the prospects for a technical corrections bill are uncertain and may hinge on the outcome of the midterm election in November. Democrats and Republicans alike in Congress agree that the bill needs to be fixed, but Democrats who were largely left out of the process of drafting the tax code overhaul last year want more far-reaching changes than Republicans are likely to agree on, in areas such as limitations on deductions for state and local taxes, for example. The two parties managed to agree on a fix earlier this year involving agricultural cooperatives and large agribusinesses known as the “grain glitch” and to insert it in an appropriations bill, which was a priority for Republicans in farm states, in exchange for strengthening of low-income housing tax credits, a priority for Democrats (see Congress to give IRS $320M funding boost to administer new tax law while fixing ‘grain glitch').
However, other technical corrections are also being sought in areas such as tax credits for bonded wine cellars, and tax deductions for charitable contributions and sexual harassment settlements, according to The Hill. More horse trading between lawmakers in both parties will probably be needed before those provisions get fixed.