McDonald’s Corp. is a part of a coalition of restaurants and retailers that has appealed to Congress to fix a “drafting error” in the Tax Cuts and Jobs Act that is deterring some business owners from investing in their stores.
According to Reuters, the coalition states that lawmakers intended to change the tax reform law so that the costs of remodeling or improving stores or restaurants would be eligible for bonus depreciation.
Instead, the law requires that the depreciation for qualified improvement property be stretched out over 39 years instead of being eligible for 15-year and 100 percent bonus depreciation. Coalition members say members of Congress have admitted this was an error, but the current political climate may not allow for any consensus among legislators to fix the drafting error.
Depreciation is an accounting concept in which the cost of an asset is reduced over time, and depreciation expense historically has been allowed as a tax deduction against revenue. This is particularly important as McDonald’s owner/operators are in the midst of undertaking major remodeling projects through the BBV 2020 initiative.
Reuters reported that the National Retail Federation, National Council of Chain Restaurants and the Retail Industry Leaders Association sent a letter June 5 to members of Congress asking for changes. Among the companies represented by the groups are McDonald’s, Target, Macy’s and Red Robin Gourmet Burgers.
“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,” the letter states.
Industry advocates are working to urge the Treasury Department to publish regulations that workaround the error until it can be legislatively corrected, but nothing has been published at this time.
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