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Federal legislation seeks to correct tax law ‘typo’ to help businesses

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Two bills introduced to Congress in March are intended to amend the federal tax reform law so that retail shop owners and restauranteurs can receive more tax incentives for capital improvements.

“This bill will correct a drafting error in the tax reform law related to ‘qualified improvement property’ (QIP) that is delaying job-creating investments in stores and restaurants across the country,” wrote David French, vice president of government relations for the National Retail Federation, in a letter to members of the House of Representatives. “This error in the law affects jobs in retail, restaurants and construction in every community in the country.”

House Resolution 1869 was introduced March 26 by Rep. Jimmy Panetta, a Democrat from California, and has 22 bipartisan co-sponsors. Senate Bill 803 was entered March 13, with Sen. Pat Toomey, a Republican from Pennsylvania, as the main sponsor. It has 13 co-sponsors representing the Democratic, Republican and Independent parties.

The online texts for the bills are not available yet, but according to the retail group, the legislation seeks to correct a “typo” introduced into the Internal Revenue Service tax code by the 2018 Tax Cuts and Jobs Act.

According to several tax firm blogs, the 2018 amendment was meant to boost incentives for equipment or building investments in qualified properties by increasing the bonus depreciation from 50 percent to 100 percent and by decreasing the time of depreciation from 39 years to 15 years. But a technical error led to the deletion of the bonus depreciation and kept the depreciation period at 39 years. Under the current language, companies spending large amounts of money on interior upgrade projects would only be able to write off 2.5 percent of their improvement costs in the first year that they occurred, with the rest to be written off over the remaining 38 years.

“This very large difference in the after-tax cost of making these improvements is causing a delay in store and restaurant remodeling projects, as well as causing retailers to decline opportunities to purchase or lease new store locations that would require substantial improvements,” French wrote in his letter.

The national retail group, based in Washington, D.C., represents U.S. and international stores, restaurants and online businesses.

The House bill has been referred to the House Committee on Ways and Means. The Senate bill is the Committee on Finance.