Dear Speaker Ryan, and Chairman Brady,
We write to commend your hard work to refresh and streamline the tax code and restore robust growth and increase opportunities in our economy. H.R. 1, the "Tax Cuts and Jobs Act" (TCJA) is already helping to drive economic growth, encourage investment, and bring down unemployment to its lowest level since 1969. While the TCJA is stimulating the economy, there are areas of the law that need corrections and tweaks so that our communities can experience the full intended effect of the law. To ensure the smooth transition to the new tax system, it is essential that these corrections be made quickly.
One such area that needs to be addressed are the provisions relating to qualified improvement property (QIP). An early version of the TCJA included provisions to allow QIP investment¬ often made by restaurants and retailers to improve the interior of their locations or move into empty ones- to be fully and immediately "written-off' on their tax bill in the year the expenses were incurred. However, due to a technical error in Section 13204 of H.R. l, businesses making QIP investments can only deduct 2.5% of their improvement costs in the year the expenditure is made and the other 97.5% over the next 38 years. This error has created a situation where QIP investment is treated even less favorably than before passage of the TCJA.
Restaurants and retailers are some of the most visible and valued businesses in our communities and it is essential that we correct this technical error and extend to them the same treatment as other types of investment. While they wait for Congress to act to correct this error, these businesses are forgoing renovations, halting plans to revitalize declining malls, and placing safety improvements on hold. Not only does this hurt restaurants and retailers, but also the businesses involved in the planning and renovations, and ultimately our communities.
This issue clearly qualifies as a "technical correction" for tax legislation. The conference report for H.R. 1 (Rep. 115-466) and the score provided by the Joint Committee on Taxation (JCT, report JCX-67-17) both reflect the newly-consolidated QIP category as 15-year property.
Importantly, because JCT's score accounts for QIP as 15-year property, a fix for this issue to make it workable for American businesses would not be scored as a loss of revenue or an increase in the deficit.
We urge you to bring legislation to the floor of the House of Representatives as swiftly as possible to fix the QIP investment drafting error in the TCJA and restore the ability of restaurants and retailers to fully and immediately expense their QIP investments. In the meantime, please encourage the Treasury Department to issue interim guidance and refrain from enforcing the drafting error until a legislative fix is achieved. These changes are vital to ensuring the health of our economy.