Retail came up as a big, but very subtle, winner in the economic stimulus package passed by the Senate last night (March 25) in response to the coronavirus pandemic. While most of the focus has been on the $1,200 payout to consumers, retailers will also gain from the bill’s revision of two key points from the 2017 tax bill.
The first change prevented retailers and restaurants from depreciating building improvements within a tax year. It was meant to be the opposite in the 2017 bill, but was never fixed until last night. Now retailers can depreciate business improvements within a year, instead of waiting for 39 years, which is how the bill read.
The second fix concerns deductions for net operating losses. In the 2017 law, the intention was to limit the ability of firms to claim tax breaks that occur when deductions exceed income. But they didn’t mean to apply that limitation retroactively.
“Firms that had fiscal years ending March 31, 2018, for instance, lost the ability to claim carrybacks extending back to the second calendar quarter of 2017,” said legislative reporting site Roll Call. “Companies including PetSmart, Nissan and retailer Charming Charlie, which all have non-calendar fiscal years, lobbied on the issue.”
That fix will allow loss carrybacks for up to five prior years. When retailers now use losses to offset prior taxes paid, they can still file revenue from when they were profitable without forfeiting refund checks.
The economic stimulus bill will also make it easier to keep employees. It includes an employee retention tax credit on wages up to $10,000 per employee per quarter. Retailers must have fully or partially suspended operations and suffered a significant decline in revenues to qualify.
Also in the retention section: “As an additional incentive to keep workers on staff, the measure would allow companies to defer the 6.2 percent Social Security tax on all wages up to $137,700 for the rest of the year, though they’d have to pay it back in equal installments in 2021 and 2022,” according to Roll Call. “What they owe, though, would be reduced by the tax credits earned by keeping employees on their payroll.”
The National Retail Federation (NRF) supported the stimulus bill. “Retailers big and small and the associates they employ appreciate the efforts by leaders in the House and Senate and by President Trump to successfully negotiate the CARES Act and moving rapidly to make it law,” said NRF president Matthew Shay. “Companies that were investing, growing and contributing to a vibrant economy just a few weeks ago have been thrust into survival mode through no fault of their own. They need a bridge to get through this turbulent time and back to the business of job creation and economic prosperity for their workers and the customers they serve. These companies are hurting and need help immediately.”
Will it be enough to save businesses that were on the edge? Most likely it will help large retailers more than small and medium-sized businesses (SMBs). Until June 30 the Small Business Administration will guarantee loans to a broad array of businesses, including independent contractors and the self-employed.
According to eMarketer, consumers remaining at home will likely lead to reduced spending at brick-and-mortar shops, which would be especially harmful for SMBs. It says 44 percent of those businesses have not prepared for any kind of financial downturn. In the U.K., for example, 69 percent of small businesses are already experiencing cash flow issues related to the coronavirus. “Hence, many businesses might have to seek out external funding sources, like loans, to weather the storm and remain operational,” said eMarketer. “This could boost uptake of services from alt lenders like iwoca and OakNorth that offer quick funding options, such as short-term loans.”