Tax Reform

Position: SUPPORT
Status: LEGISLATION INTRODUCED

History
Both the White House and congressional leaders have stated that fundamental tax
reform is a key legislative priority for the 112^th Congress. While an overly complex tax code and ever-increasing tax burdens seem to fall on the backs of franchisees, many in Congress believe cutting tax credits will help solve America’s debt issues. As a result, the extension of tax incentives, such as the Work Opportunity Tax Credit (WOTC) and the 15-year restaurant depreciation schedule, are being increasingly threatened. Concurrently, states facing increasing deficits are reinterpreting the tax code in an effort to increase funds.

Summary
BUSINESS ACTIVITY TAX SIMPLIFICATION ACT (BATSA): Because states are desperate for more revenue to balance their budgets, some are reinterpreting the “substantial presence nexus” test for taxation and targeting royalties paid to franchisors that reside outside the state. Because many franchise agreements require franchisees to pay all state taxes levied on their franchisor, these costs will be passed on to the franchisees. The CFA supports BATSA (H.R. 1439), which would establish a bright-line rule codifying the “physical presence” requirement while reducing the burden on interstate commerce.

WOTC:  The Work Opportunity Tax Credit (WOTC) encourages employers to hire people who may traditionally experience more difficulty finding jobs. Employers who hire workers from targeted groups – including former welfare recipients – are eligible for a federal income tax credit of 40 percent of no greater than $6,000 of the qualifying employee’s wage—equivalent to up to $2,400 per year per employee. WOTC expired on December 31, 2011. The CFA believes permanently extending WOTC would incent franchisees to hire more employees while helping more disadvantaged workers transition toward self-sufficiency.

DEPRECIATION: The federal tax code currently allows restaurant owners to depreciate original building costs, renovations and improvements over a 39 ½-year schedule. Over the past few years, however, Congress has allowed for a temporary 15-year depreciation schedule for these costs, which convenience and grocery stores currently enjoy on a permanent basis. The CFA supports legislation (S. 687, H.R. 1265) which would make permanent the 15-year depreciation schedules for renovations, improvements and new construction. By shortening the depreciation schedule, Congress gives operators cash flow to reinvest in their businesses and to create more jobs.

Position
CFA supports BATSA, as well as permanent extensions of restaurant depreciation schedules and WOTC. Tax incentives like these, along with a simplified tax code which does not burden small business owners, would increase investment and stimulate job growth.