Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Wednesday, December 17, 2014

Federal tax provisions for "small" retailers help big retailers more

Mayor Nutter Small Business Saturday 2013 092

According to Chain Store Age ("House approves bill to help retailers with remodeling costs") the House passed a bill authorizing a 15-year depreciation period for store renovations, instead of the 39 year period required in current law.

Mayor Michael Nutter promoting Small Business Saturday in the Kensington neighborhood of Philadelphia. Flickr photo by New Kensington Community Development Corporation.

Yet, retail stores have to be refreshed every 5-7 years anyway.  

It would make sense to have a depreciation period more in line with the expected useful life of the expenditure--15 years is 1/2 to 2/3 too long a period.

Similarly, the bill approves "bonus depreciation," allowing the claiming of a deduction of half of the total costs in the first year, but only for "leased stores."

That puts small store proprietors who own their properties at a comparative disadvantage to chain stores. Along with many other tax and legal stratagems (for example, big companies put their intellectual property, like logos, in a separate corporation and require individual stores to pay royalty fees for use of the logos, depressing reportable income).

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At 11:14 AM, Anonymous charlie said...

If the useful life in 5 to 7 years, a 15 year depreciation schedule is 2x as long as it needs to be, no?

Good catch on the leased bit.

That said, leasing it what has enabled alot of the local supermarket conversions.

Likewise, ownership (Car dealers) trigger things like Ballston or Tyosns.

At 12:16 PM, Blogger Richard Layman said...

Yep. It's just, as you know, all about financing in terms of shaping "local" retail.

E.g., I am gonna write about Donatelli once the city decides about the deal in Res. 13, and I just think about their projects vs. say the Foulger Pratt Walmart on Georgia Ave.

This needs an update:

And also, as we've discussed, the impact of pure play REITs on mixed use. This is more of an issue in cities, with small projects, less with big projects in the suburbs.

At 3:25 AM, Anonymous James D said...

I feel like I'm missing something...

IF the desirable period to renovate the interior of a shop is 5-7 yrs:

1) If you can't use a seven year depreciation period to write off the expense, isn't fifteen years better than 39 years?

2) How does this change help out large retailer's more, specifically on this issue? It seems like the worst case scenario would be big businesses find loopholes around the law and can continue doing thing in a near-status quo (i.e. able to apply depreciation for five to seven years), but small businesses get the extra 24 years.

At 2:18 PM, Blogger Richard Layman said...

Obviously, 15 years is better than 39, but it would be "even" better to have a logical time-based depreciation period incremented to useful life.

(You know the line from the movie "Postcards from the edge" -- "those are my choices?")

To me it's just another example of Congress being half-a**ed and the overcomplexity of the tax code.

2. For small retailers, the 15 or 39 year period is too long.

And the failure of bonus depreciation to benefit property owners "discriminates" against small proprietors who own their properties.


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