Home Furnishings Association member John V. Schultz Furniture in Erie, Pa., has been growing, but further expansion is on hold, thanks to a detrimental tax provision.
“In the past year, our family furniture business has undergone significant growth and made large investments with the opening of two new furniture stores in Erie and Pittsburgh,” President Matt Schultz says. “This investment has nearly doubled our employment with the addition of over 100 jobs to our company.
“Now future growth has been put on hold as a result of the current tax language not allowing us to deduct these building improvements on our tax return as in the past. This change has caused us to put on hold a large office construction project at our warehouse, as well as building out future furniture stores needed in the Pittsburgh market.”
This roadblock, placed in the Tax Cuts and Jobs Act of 2017, was created by mistake. A drafting error in the bill altered the intent of Congress to accelerate tax write-offs for retail businesses investing in renovations or expansions of their property. Instead, the provisions limited the tax break and stretched it out over 39 years – well beyond the expected lifetime of most improvements. The result was to discourage business growth.
A bipartisan group of senators, led by Pat Toomey (R-Pa.) and Doug Jones (D-Ala.), on March 14 introduced a bill, called the Restoring Investments in Improvements Act, to correct this error. Similar legislation is expected in the House.
“As a former restaurant owner, I know keeping a small business alive is always a challenge. The federal tax code should not make it more difficult for a restauranteur or a retailer,” Toomey said in a news release. “Capital invested in a company should be fully deductible at the time of the investment. This helps make the investment affordable. Our simple, bipartisan fix recognizes the economic benefits from immediate expensing and will help grow the economy and create jobs.”
Toomey used Schultz’s experience as a home-state example of why the correction is needed.
Toomey’s news release also listed HFA as one of many business organizations pushing for the tax fix. HFA has asked members in key states to contact their senators to urge them to back the bill. The effort has produced bipartisan backing for the Toomey-Jones initiative, with Republican Sens. Rob Portman (Ohio), Pat Roberts (Kansas) and John Thune (South Dakota), Democratic Sens. Joe Manchin (West Virginia) and Jeanne Shaheen (New Hampshire) and independent Sen. Angus King (Maine) signing on as co-sponsors. Soon after the bill was introduced, Arizona’s senators, Republican Martha McSally and Democrat Kyrsten Sinema, added their names. More senators of both parties were expected to follow.
Bipartisan support is also building in the House, although tax legislation is likely to face more opposition there and quick passage isn’t expected.
HFA members who invested in expansions or renovations in 2018 should consult a tax attorney, but it might be advisable to request an extension before filing their return to give Congress more time to act.
To Schultz, this isn’t about politics.
“By passing this bill, it will allow us to continue our business growth plan that will help further create jobs both for our company as well as our local community,” he said.
Sen. Toomey said examples of projects currently excluded from “full and immediate expensing” are:
- Improving the interior of a retail store;
- Renovating the dining space in a restaurant;
- Installing new signs for the business;
- Upgrading lighting fixtures to more energy-efficient products; and
- Modernizing common areas in office buildings.
When enacted, the Restoring Investments in Improvements Act “would ensure the full cost of store, office or building improvements can be immediately expensed as was originally intended,” Toomey’s news release said.
“We thank Sen. Toomey, Sen. Jones and the other sponsors for advancing this important legislation,” HFA CEO Sharron L. Bradley said. “Furniture retailers who invest in growing their businesses and adding jobs should be entitled to fair tax breaks or else they might have to put those plans on hold. We urge other members of Congress to help see that this provision is enacted as quickly as possible.”
An excellent commentary on this issue was recently published in Forbes.