WASHINGTON -- Food retailers should enjoy some benefits from two pieces of tax legislation that advanced last week, according to industry associations.
First, President Bush signed into law the Working Families Tax Relief Act, which, in addition to extending certain tax breaks for families for another five years, also extended the Work Opportunity Tax Credit and Welfare to Work Tax Credit through Dec. 31, 2005, and made them retroactive for the last nine months. Many retailers use those credits to fund training for disadvantaged workers, according to Food Marketing Institute here.
"Almost all food retailers use that tax credit to hire people from certain disadvantaged or undereducated groups and use the credit as an offset to help them train the people," said John Motley, senior vice president of government and public affairs, FMI. "It's used rather broadly. The fact that it was allowed to expire was a concern. We've been working with others to reinstate it, and we're very pleased that it has been reinstated. It's worth tens of millions of dollars to some of the larger firms."
The provision allows retailers to claim a tax credit for up to 40% of the first $6,000 of wages paid to individuals who meet certain criteria, such as those who are eligible for food stamps.
The corporate tax-code overhaul that passed in the Senate the next day contains some elements for both big and small operators, according to FMI and the National Grocers Association, Alexandria, Va. It included almost $137 billion in corporate tax breaks and has been described as the largest business tax code overhaul since 1986. The legislation, which passed 69 votes to 17 after an earlier victory in the House, is expected to be signed into law soon by Bush.
Although the main purpose of the bill was to repeal an export tax structure that had been ruled illegal by the World Trade Organization, it included some provisions that benefit food retailers. Among them was a change allowing retailers to depreciate the remodeling costs on leased property over 15 years instead of over a period of more than 30 years in some cases.
"You're talking about depreciating more than twice as much as you were before," Motley told SN. "The companies that lease their property benefit by this provision. We think it ought to be extended to people who own their property, because if you go in and revitalize the property on your own, you ought to be able to get a similar quick write-off."
The bill also includes a three-year suspension of a $250 annual per-store fee that retailers pay to sell alcohol, a tax that has been especially bothersome to NGA members, according to Tom Wenning, senior vice president and general counsel for the association representing independent food retailers.
"We've been strongly in support of the repeal of this tax," he told SN.
Small businesses should also benefit from a provision in the tax package that extends for two years a provision allowing entrepreneurs to write off up to $100,000 spent on purchases of new equipment in the first year. Such items as new refrigerators and new front-end systems would be covered by this, Wenning said.
Also beneficial for small businesses was a provision simplifying the tax rules for companies classified as "sub-S" corporations, according to Wenning.
"There are a number of things in the tax bill that will prove of use to independent retailers and their wholesalers," he said, noting that the NGA was still sorting through some of the elements of the new tax code late last week before advising members on its implications.
The elimination of two non-tax riders from the bill also was a boon to food retailers, according to Motley of FMI. One of the riders would have eliminated the overtime work rules that the Department of Labor had implemented this year. The other was a proposal to have the Food and Drug Administration regulate tobacco sales.