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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.


Image: iStock/patty_c