By now, all grocers should be aware of the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), the $2 trillion economic relief plan passed by the U.S. Senate this past March. While the $1,200 stimulus check is definitely the most popular feature, grocers are rejoicing at the correction of the “retail glitch.”
Included in the CARES Act is a provision to correct the Retail Glitch and assign a 15-year class life to Qualified Improvement Property (“QIP”). The correction applies retroactively to improvements placed in service after September 27, 2017. As a result, QIP is now eligible for 100% bonus depreciation and can be depreciated over 15 years as opposed to the prior 39-year requirement. Additionally, taxpayers may choose a 20-year depreciable life based on the alternative depreciation system (ADS), in order to avoid the IRC section 163(j) limitation.
In addition to correcting the QIP recovery period, the CARES Act also amended the definition of QIP that is eligible for bonus depreciation. Based on the updated definition, to qualify for bonus depreciation in this context, improvements must be “made by the taxpayer.” As such, taxpayers who acquired previously ‘used’ QIP (as opposed to ‘original use’ QIP) would not be entitled to bonus depreciation.
Further, not all improvements are automatically considered 15-year QIP eligible for bonus depreciation. Rather, QIP is defined as any improvement to an interior portion of a building which is nonresidential real property, if the improvement is placed in service after the date the building was first placed in service. For example, costs associated with HVAC equipment located on the roof, exterior electrical, exterior painting, rooftop improvements, site utilities, paving, roofing, windows, exterior doors, and siding, are not Qualified Improvement Property.
Technicalities aside – what does this information mean for grocers battling the coronavirus pandemic?
Sneeze guards, awareness signage, hand sanitizer installations, online pickup stations, online shopping interfaces and other coronavirus safety measures to keep stores clean are all included in QIP, meaning that any money borrowed for these improvements will be 100% forgiven within the year. With the customer’s desires for a safer, more efficient in-store and online experience, there’s no reason to not to apply for one of these loans. After all – they’ll be will be 100% forgiven, so improvements are at no cost to you.
Advice for Grocers
Use the loan to invest in safety measures for the long haul – not just right now. Buy a couple of sneeze guards and floor stickers so you can replace others when they get dirty. While it may seem like a stressful time to make store upgrades, the impression of cleanliness and customer safety will really speak to your shoppers.
You could also consider reaching out to your investors about the loan and your planned improvements. Not only is this beneficial for keeping your investors in the loop, but they might be willing to invest more money to ensure customer satisfaction and safety.
Remember your hero associates – what physical improvements can you implement to tend to their safety and comfort as well?