As part of a $120 billion catchall tax bill he introduced this week, Senate Finance Chairman Max Baucus has revived tax breaks important to small retailers and restaurants that were initially part of the debate over a minimum-wage increase last year.
The provisions would expand on a popular tax break that expired at the end of last year, a shorter 15-year depreciation schedule for improvements to leased properties and restaurants, down from 39 years.
The Baucus bill would revive and extend the tax break until the end of 2008, but with some important new additions: owner-operated stores and new restaurant construction would now be eligible.
Similar provisions were included in the Senate Finance small business tax package that was paired with the minimum wage increase early last year, but later dropped.
That measure got tied up in the larger debate over the Iraq war, as the minimum wage measure eventually was signed into law as part of the spring war supplemental. "Basically it was a lot of politics that had nothing to do with the tax bill," said Rachelle Bernstein, vice president and tax counsel at the National Retail Federation.
Retailers lobbied hard for initial enactment of the 15-year cost recovery period as part of the 2004 corporate tax law, but were disappointed when retail owners were left out of that bill. Shorter depreciation schedules allow businesses more immediate access to cash for investing in capital projects and other expenses.
"We're very happy to see this," said National Retail Federation spokesman J.Craig Shearman, who said the provision would level the playing field between "Mom and Pop"-type, owner-operated stores and bigger chains leasing space in shopping malls.
"Certainly we've always thought all retailers should be able to play under the same tax rules," he said. Store improvements rarely last 39 years, he added. "That would be like having a store that hasn't been renovated since 1969," said Shearman.
Likewise, the National Restaurant Association praised the inclusion of new restaurant construction in eligibility for the shorter-cost recovery period. Currently only improvements to existing restaurants qualify for the 15-year depreciation schedule, and because some extensive remodeling projects involve knocking down walls, those projects might not qualify.
Also, improvements to food outlets at amusement parks and racetracks benefit from a 7-year cost recovery period, while gas stations and convenience stores enjoy a 15-year schedule, which have served as an incentive to expand food options.
Restaurants argue that puts them at a competitive disadvantage. "NRA has been fighting for this provision for a long time, and we're greatly appreciative of the leadership of Sen. Baucus for including it," said spokesman Mike Donohue.
The addition of new restaurant construction as well as family-owned stores to the shorter depreciation period comes at a cost, adding about $1.3 billion to a straight one-year extension as included in the House-passed tax extender bill. The more expansive Senate provision would cost $6.7 billion over 10 years, one of the larger single provisions affecting businesses in the bill.
Restaurants and retailers hope the current tax extender bill, which is locked in a stalemate over whether to pay for the provisions and general election-year partisan gridlock, does not share the same fate as last year.
The Senate on Tuesday failed, 50-44, on a procedural motion that would have allowed debate to proceed on the bill. "I think there's a growing risk we could end up at the end of the year without the extenders being addressed," said Clint Stretch, managing principal for tax policy at Deloitte Tax LLP.
The Senate could take up the tax bill again next week, and the small business provisions enjoy broad bipartisan support. For example, Sen. Kay Bailey Hutchison, R-Texas, is a lead sponsor of separate bills to make retail owners and new restaurant construction eligible for the shorter recovery period on a permanent basis.
Senate Minority Whip Kyl is her lead co-sponsor on the restaurant bill, while Sen. Olympia Snowe, R-Maine, sponsored the bill for small retailers. Both Kyl and Hutchison voted against cloture on Tuesday, however, in opposition to the larger bill's offsetting revenue increases, while Snowe voted with the Democrats.
Similar bills have been introduced on the House side, also with broad bipartisan support. The bill to make new restaurant construction eligible for the 15-year cost recovery period, introduced last year by Reps. Kendrick Meek, D-Fla., and Pat Tiberi, R-Ohio, has 144 co-sponsors.
This article appears in the June 14, 2008 edition of NJ Daily.