September 20, 2018

Whoops! Tax Law Gaffe Puts Restaurants’ Renovation Plans on Hold

Back in December, White Castle Vice President Jamie Richardson was singing the praises of the GOP tax bill, calling it “the biggest good thing for small business in three decades and a generation.” But I think he might be changing his tune.

The “House of Sliders” is among the fast-food restaurants and retailers that have had to postpone renovations to aging facilities thanks to a flaw in the wording of the Tax Cuts and Jobs Act, the Wall Street Journal reported on July 10.

According to the article:

As intended, the new tax law would have let White Castle and other companies deduct their renovations costs immediately, rather than over many years, providing an incentive to do such work. President Donald Trump recently praised immediate write-offs for these and other capital investments as “maybe the most important element” of the tax law.

Instead, as written, White Castle and other companies must depreciate building-renovation costs over 39 years—a less favorable rule than existed before Congress changed the law.

The reason is the statute lacks the words “any qualified improvement property” in the correct place, according to the article, which would have made these improvements eligible for the first-year write-offs that apply to equipment purchases and other items.

The Wall Street Journal cited a Tax Foundation analysis that said a company making a $100 renovation could deduct the costs over 15 years, for a present-value equivalent of $84.38, under the previous tax rules. The goal of the new law was to allow a full and immediate $100 deduction. But with the deductions stretched out over 39 years, that same company can now deduct only $42.12 in present-value terms.

White Castle typically renovates six to 10 of its nearly 400 company-owned locations each year, often updating the dining room, redesigning the kitchen, and fixing bathrooms, according to the article.

“This is freezing people in their tracks,” Richardson told the Wall Street Journal. “It’s real, and we’re hoping something can get done as soon as possible.”

But Richardson and other fast-food restaurant executives might be waiting a while. The article states:

The process of fixing this flaw and other technical problems in the law is moving slowly, weighed down in part by lingering partisan bitterness over the crafting of the tax law, which passed without a single Democratic vote.

Democrats, who recall Republicans’ reluctance to help make technical changes to the Affordable Care Act, aren’t necessarily eager to quickly correct flaws that stemmed in part from the speedy tax-bill-writing process they criticized in 2017.

How the hell did no one catch this mistake before Congress voted on the Tax Cuts and Jobs Act? I’m sure many fast-food restaurant operators are asking that same question.

[WSJ]

Image: iStock/patty_c

Related articles

UBS Closer to Getting the McCarthy Treatment

IRS_logo-thumb-150x140.jpgIf you’ve got a Swiss bank account, here’s hoping you opened it because it was convenient for your monthly skiing/Toblerone getaway.
The U.S. and Swiss governments have agreed to share more tax information in order to crack down on all the tax dodgers out there that send their money offshore. The timing of this agreement is is especially diabolical because the IRS is currently trying to get Swiss bank behemoth UBS to name names of over 50,000 American clients.
Hearings in Miami are scheduled for next month to see if the names can be released, however, the Swiss have stated that this may violate Swiss law of double-secret-no-tattling-on-clients.
Ultimately, the Swiss Federal Council and Parliament will decide if the new agreement is kosh but judging by the Obama Administration’s hard-on for closing tax loopholes, they’ll probably play ball.

U.S. and Switzerland to Share More Tax Data
[DealBook/NYT]

BBC: Grant Thornton is Scheming for the Rich People

Grant-thornton-logo.JPGOkay, so large accounting firms don’t have the best reputations. They also have the tendency to be thick as thieves when they come under scrutiny. And the green eyeshade look has never been one that screams trustworthy.
But now, in what might be a bit of presumptuous awesomeness, the BBC is coming right out and calling Grant Thornton’s Growth Securities Ownership Plan (GSOP) a scheme. Maybe we’re jumping to conclusions but the subtitle doesn’t strike us as being subtle: “A big accountancy firm has denied that it has been peddling a tax avoidance scheme to help rich people avoid paying the new 50% income tax rate from 2010.
Let’s break some of the key words and phrases down:
Peddling: Use of this word basically implies that narcotics are involved
Tax Avoidance Scheme: Implies a conspiracy of smart people to screw the tax authority on behalf of…
Rich People: Not the best time in history to be lumped into this particular demographic
WTG, G to the T. Not only are you trying to screw the taxing authority in Britain by virtue of the equivalent of slinging financial smack, you’ve got the audacity to do it on the behalf of rich people.
Accountants deny ‘new tax dodge’ [BBC]