WASHINGTON — Retailers are lining up behind two bills that were passed by a key House committee on Thursday that would make permanent tax incentives for remodeling and new capital improvements at their stores.
The first of the two measures approved by the House of Representatives’ Ways and Means Committee, the “Restaurant and Retail Jobs and Growth Act,” sponsored by Rep. Mike Kelly (R., Pa.), would make permanent a provision that allows retailers to write off the cost of remodeling or make improvements to their stores over 15 years instead of the standard 39-year period for buildings.
The second bill, sponsored by Rep. Pat Tiberi, (R., Ohio) and also advanced by the committee, would make permanent a tax break that allows businesses to make capital investments, such as leasehold improvements, by allowing merchants to deduct half the cost immediately and depreciate the remainder over a designated period of time. The legislation would also expand the existing provision and allow the inclusion of owned stores in addition to leased stores.
Both measures expired at the end of last year as part of a temporary package of tax extenders that Congress must periodically approve. If approved by the full House and Senate, the tax provisions would be renewed retroactively and become a permanent part of the tax law.
“Retailers update or remodel their stores every five to seven years to remain competitive, but the high aftertax cost of making these investments often delays these much-needed updates,” said David French, senior vice president of the National Retail Federation. “These bills would provide important investment incentives that would spur our sluggish economy.”
The NRF said the two measures are significant because they make it more affordable for merchants to remodel their stores by providing tax benefits up front for renovations.
As an example, under current depreciation tax law, a store spending $500,000 on expanding its showroom would only be able to deduct less than $13,000 of the expansion costs in the first year, with the depreciation then spread out over the next 40 years. The two bills given committee approval Thursday contain provisions that combined would allow the same store to deduct $250,000 from its tax bill in the first year and spread the remaining $250,000 over the next 14 years, which would free up more money for further investment, according to the NRF.