The Tax Foundation is urging Congress to fix a drafting error in the new tax law that it says is harmful for retailers and restaurant owners seeking to make renovations.
"The tax burden on building improvements should not have worsened due to tax reform," Erica York, an analyst at the free-market think tank, wrote in a report released Wednesday.
Under the new tax law, businesses can immediately write off the full costs of their short-lived investments, a provision known as "full expensing" or "100 percent bonus depreciation."
Lawmakers intended for improvements to property such as retail stores and restaurants to be eligible for 100 percent bonus depreciation. However, because of an oversight, the legislative language didn't specify this.
Instead, under the language of the tax law, businesses would generally have to write off the cost of the property improvements over 39 years. This is a longer cost-recovery period than the 15-year period that existed under the old tax code.
The Tax Foundation said when companies have to deduct the costs of their investments over a number of years instead of immediately, "the value of the depreciation deduction declines over time, making businesses unable to fully recover the cost of the initial investment." As a result, businesses are discouraged from making capital investments.
"Policymakers should work to extend 100 percent bonus depreciation to qualified improvement property; at a minimum, they should make sure that the rules for deducting the cost of building improvements do not remain more restrictive than under previous law," The Tax Foundation wrote.
It's unclear when Congress will pass legislation to make technical corrections to the tax law. Democrats, who all voted against the law, have been reluctant to support technical corrections absent more substantive changes.