WASHINGTON — While retailers welcomed the idea of a reduced corporate tax rate, as suggested by President Obama in his State of the Union speech last week, they are also cautious that a rate cut could be offset by the elimination of tax deductions they currently enjoy.
Without providing specifics, Obama called on Congress to lower the current corporate tax rate of 35%, suggesting that it also eliminate some tax “loopholes” now used by businesses.
“The challenge is that he wants to come up with a corporate bill that's revenue neutral, and the devil is in the details when that happens, because somebody's loopholes are somebody else's important deductions that they have [operated with] for years,” Jennifer Hatcher, group vice president, government relations, Food Marketing Institute, told SN.
She said she expected the president to propose a corporate tax rate “somewhere in the 25% range,” but she did not know what loopholes he might suggest to compensate.
“We don't call LIFO — last in, first-out accounting — a loophole, but if you call it a loophole, the impact of eliminating LIFO could be incredibly significant to those folks in our industry who have had that set-up for years.”
LIFO allows retailers to account for the cost of an item as the most recent price paid, which can reduce taxes.
Sen. Jon Kyl, R-Ariz., also mentioned cutting the corporate tax rate in a presentation to the FMI board at a meeting last week, Hatcher said.
“The fact that it is coming from both sides of the aisle means it has a lot more potential for actually happening,” she noted.
Thomas Wenning, executive vice president, National Grocers Association, said that group's members might be more concerned over the president's talk of restoring taxes on the wealthiest individuals, which would include many independent supermarkets that are organized as “pass-through” entities.
“Certainly NGA is generally supportive of a reduction in the corporate tax rate, he told SN. “The concern is over what are the changes that will enable the lower rate.”
He added that the repeal of LIFO accounting would “be something that engenders our opposition.”
The NGA opposed a bill to reduce the corporate tax rate in 1986, he noted, because it also eliminated the investment tax credit for fixtures and equipment.