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Tax code typo is harming America’s restaurants

Congress needs to fix the ‘QIP glitch’

UNITED STATES - SEPTEMBER 18: The U.S. Capitol building as seen from the Senate side on Wednesday, Sept. 18, 2019. (Photo By Bill Clark/CQ Roll Call)
UNITED STATES - SEPTEMBER 18: The U.S. Capitol building as seen from the Senate side on Wednesday, Sept. 18, 2019. (Photo By Bill Clark/CQ Roll Call)

OPINION — Washington, D.C., is my adopted home, and it is where my restaurants have been embraced, including Succotash in our Penn Quarter and National Harbor locations and MiVida in District Wharf. And we have plans to open several new locations including The Grill in District Wharf, and Gatsby and Mah-Ze-Dahr at Capitol Riverfront, the home of our World Series champions.

Unlike many here, my passion is not politics — it’s hospitality. But a mistake made by Congress has moved me to speak out because a simple tax bill typo is unnecessarily hiking the cost of doing business. This error has caused delays in expansion and remodeling, making it harder to hire employees and expand benefits, as well as compete in today’s hyper-competitive business environment. And it’s not just happening here, it’s affecting thousands of restaurants, retailers, grocers and other businesses in every corner of the country.

In 2017, Congress passed its sweeping tax reform, and it wasn’t until it was signed into law that many businesses learned that a drafting error had dramatically changed the tax and accounting treatment of “qualified improvement property,” or QIP. This category was inadvertently assigned a 39-year depreciation period instead of the intended 15-year standard that was prior law and that we have relied on for our major capital investments. On top of that, businesses affected by this “QIP glitch” also lost bonus depreciation, a tax benefit that helps many of them shoulder substantial investments on an accelerated basis when they reinvest in their operations, space or employees. It might sound like simple accounting language, but the impact is far from simple and hits businesses of all sizes throughout the country.

For a restaurant group like mine, securing space in new and redeveloped parts of the District involves multimillion-dollar leases and tenant improvement deals. Our financial backers count on the predictable and manageable combination of income, tax treatment and growth to make their investment worthwhile — and we count on it to get the backing we need to start up and run.

As our restaurants see thousands of people every day, the wear and tear we experience also needs to be addressed on an ongoing basis. We are constantly upgrading and remodeling to keep our facilities clean, modern, competitive and welcoming. That is what hospitality is all about.

[Craft distillers, retailers wait anxiously for tax extenders]

We rely on the QIP depreciation treatment to help recover costs on significant investments we make in fixtures, upgrades, furnishings, large-scale equipment like ovens, fryers and grills, and things like new floors and facility remodels. The prior 15-year depreciation period, like other tax benefits, offered a shot in the arm to help businesses like mine compete and grow.

Worst of all, as we prioritize our limited dollars to cover far different tax bills than we’ve seen before, we have to make tough choices between upgrading and expanding or continuing to support our greatest asset — our employees. Our servers make between $25-$30 per hour in wages and tips and our bartenders make up to $40 per hour. And we offer health care, paid leave and other traditional benefits because our employees are essential to our service and business model. But doing more with less is not a competitive posture.

The QIP glitch is among the leading roadblocks preventing restaurants and other affected businesses from growing and hiring. The longer we are beholden to it, the tougher it gets because we know, and Congress knows, that it was a mistake in the first place. So we persevere, hoping it gets fixed.

Fortunately, bipartisan legislation has been introduced to return restaurants to the more sensible 15-year depreciation for QIP. Passing it should be a no-brainer, but these aren’t ordinary times. We need lawmakers to prioritize fixing this mistake that is having a big ripple effect on the nation’s second-largest private-sector employer.

Restaurants have always been a driver of jobs and growth, and we have big plans for the road ahead. We just need Congress to take off the parking brake.

Jason Berry is a founder and principal for KNEAD Hospitality + Design in Washington, D.C.

 

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