The Tax Cuts & Jobs Act provided the business community with long-awaited tax relief and included many positive provisions for independent supermarket operators. Despite lawmakers’ efforts to simplify the tax code and alleviate tax burdens on Main Street grocers, a provision in the bill that was intended by Congress to help retailers invest in their businesses could end up harming them if not fixed.
The provision included in the law would allow for businesses to immediately write off the full costs of short-lived investments. However, due to a drafting error, the language excludes some categories of business investment, most notably qualified improvement property, from being eligible for 100 percent bonus depreciation.
Lawmakers have acknowledged this error, which has been dubbed the “retail glitch” and are supportive of correcting this issue. Since there is no cost associated with the fix, it is among the few provisions in the new tax law that has been identified by the Joint Committee on Taxation as needing a true “technical correction.”
Independent grocery stores are capital-intensive businesses that survive on slim profit margins, and it’s no secret that the supermarket industry is undergoing profound change. More competition for the same food dollar and shifting consumer preferences make it imperative for grocers to innovate and enhance the shopper experience.
One area that has emerged as an opportunity for independents to differentiate is in the perimeter, particularly in the meat and produce departments. According to results from the 2018 NGA/FMS Independent Grocers Financial Survey, nearly four in 10 dollars were generated by perimeter departments, including produce, floral, meat, deli, bakery and seafood. Further, a consumer report conducted on behalf of NGA by Nielsen and the Harris Poll underscored the importance of fresh foods to the shoppers’ overall experience. Asked what matters most in the presentation of fresh foods, shoppers gave the biggest weights to freshness and appearance, as well as cleanliness of display.
Independents recognize the need to reinvest in their stores to keep them fresh, which includes replacing expensive equipment over time, as well as upgrade shelving units, flooring, ceiling tiles, electrical wiring, and displays. The inability to write off these high-priced items fully and immediately prevents grocers from having the confidence to make needed investments.
Fortunately, bipartisan legislation entitled “Restoring Investment in Improvements Act” has been recently introduced by Senators Doug Jones (D-AL) and Pat Toomey (R-PA) and Representatives Jimmy Panetta (D-CA-20) and Jackie Walorski (R-IN-02). Along with a coalition of retail, restaurant and business organizations, NGA has been hitting the pavement, meeting with offices on Capitol Hill urging lawmakers to fix the retail glitch as soon as possible.
Independent grocery stores are the cornerstones of communities across the country, providing nutritious and fresh food to families and spurring economic growth in the neighborhoods they serve.
In a fiercely competitive industry, any opportunity to fully depreciate improvements made to stores will significantly help these entrepreneurs upgrade their stores, and more importantly, expand offerings, and hire additional staff.
For more information on the Retail Glitch and ways to contact your Congressman, visit www.nationalgrocers.org/fixtheglitch.
(Peter Larkin is the president and chief executive officer of National Grocers Association)
