EDITOR'S NOTE: This story was updated with comment from FMI-The Food Industry Association.
The U.S. Senate’s passage of a $2 trillion economic stimulus package in response to the coronavirus pandemic included a correction long awaited by grocery retailers.
Approved last night in a unanimous vote, the Coronavirus Aid, Relief and Economic Security (CARES) Act (H.R. 748) “fixed the retail glitch” resulting from a drafting error in the 2017 Tax Cuts and Jobs Act (TCJA), according to the National Grocers Association (NGA) and FMI-The Food Industry Association. The snafu inadvertently raised costs for merchants investing in facilities improvements, making it harder for supermarkets, restaurants and other retailers to write off expenses for qualified improvement property (QIP) to their stores.
“NGA applauds the Senate for fixing the retail glitch, a drafting error in the TCJA that has significant impacts for independent retailers serving communities across the country,” NGA President and CEO Greg Ferrara said in a statement.
Specifically, the TCJA included a provision giving businesses a 100% bonus depreciation for writing off the full costs of short-lived investments immediately. Congress had intended to allow businesses to write off costs from QIPs immediately instead of having to expense them over 15 years. But a drafting error required retailers, restaurants and other leaseholders to write off those costs over 39 years.
If approved by the House of Representatives and President Trump, H.R. 748 would resolve the error, which in the grocery retail arena particularly impacted independent supermarkets.
“The bill fixes the ‘retail glitch,’ a much-needed correction to a technical error in the Tax Cuts and Jobs Act, also known as QIP,” commented Jennifer Hatcher, chief public policy officer at FMI.
Retailers making investments to improve their stores have faced a cost recovery period twice that under the prior law, NGA noted.
“This fix comes at a critical time, as grocers throughout the country are making tremendous sacrifices serving customers during the coronavirus (COVID-19) outbreak,” Ferrara explained. “Independent grocers are the backbone of the U.S. economy and can now invest in their businesses and continue to serve communities during this challenging time.”
The House is expected to pass CARES in a vote currently slated for Friday. Key elements of the legislation include $500 billion to back loans and provide assistance to large companies, over $350 billion in assistance to small businesses, and a four-month extension for unemployment insurance (augmented by $600 per week) plus expanded eligibility to cover more workers. In addition, direct payments would be made to lower- and middle-income Americans, up to $1,200 for each adult and $500 for each child, depending on income level.
“We would like to thank Congress and the administration for their leadership in completing the CARES Act. The bill includes an additional $15.5 billion in Supplemental Nutrition Assistance Program (SNAP) funding in anticipation of increased participation as a result of this crisis. FMI’s members will continue to service all of our shoppers including families who rely on SNAP and WIC to make sure they have food on their tables. We’re pleased the bill raises the limit on charitable contributions for food donations as our members work closely supporting local food banks to improve food access in their communities,” Hatcher stated.
“Finally, it expands flexible spending accounts, or HSAs, to allow patients to purchase over-the-counter medical products, including those needed in quarantine and social distancing without a prescription from a physician,” she added. “Additionally, the relief act addresses the notorious ‘pink tax’ by allowing menstrual products to be considered qualified over-the-counter expenses for the purpose of HAS/FSA reimbursement.”
FMI will continue to work with Congress on the relief bill’s next phase “to ensure we support our members and their communities during this unparalleled time,” Hatcher said.
In a recent interview with Supermarket News, Ferrara noted the frustration experienced by retailers in trying to “fix the glitch.”
“There’s bipartisan recognition that it was a technical correction. It is not really controversial. But because it’s Washington and because we’re in an election year, there’s nasty politics involved. So it’s like, ‘Yeah, we know we need to get it fixed, but we want to see how much concessions we're going to get from the other side to fix it,’ ” he said.
“We have some members who have shared with us that they have actually foregone purchases and investments in new refrigeration or other products because this issue hasn't been resolved. And they don't necessarily have the confidence that Congress is going to get a fixed,” Ferrara added. “There are others who are kind of crossing their fingers and their toes and hoping Congress gets this thing fixed. It needs to be addressed.”