Chipotle Mexican Grill and Chuy’s revealed this week that each will benefit by millions of dollars from a little-noticed component of the $2.2 trillion federal relief package that was signed into law in late March.
Chuy’s said it expects $3 million in tax refunds because of the measure, a change in what is known as the Qualified Improvement Property (QIP) depreciation rule. Chipotle did not reveal how much it would be refunded specifically because of QIP but said it will gain $100 million in total between that provision of the CARES Act and a measure allowing Social Security taxes to be deferred.
The QIP provision entitles restaurants to depreciate facility improvements over 15 years rather than the 39-year schedule that Congress inadvertently set in the tax reform law of 2017. The CARES Act made the tighter depreciation schedule retroactive for several years, meaning restaurants could recalculate their taxes accordingly and file correct forms.
Under the 15-year schedule, Chuy’s was entitled immediately to the $3 million refund. A chain of 100 full-service restaurants operating in 19 states, the brand said the depreciation credit covered restaurant construction costs and “other improvements.”
The National Restaurant Association had pushed for a QIP fix for more than a year. The depreciation schedule had been extended to 39 years in the rush to hammer through the late-2017 tax bill in a matter of days at the instigation of President Trump. A 2015 law had set the time period at 15 years. The restatement of that time frame as 39 years was believed to have been a mistake on the part of the lawmakers and staff members who wrote the 2017 bill. The Association started lobbying for a correction as soon as the error was noted.
By stretching the depreciation period for capital improvements, and thereby lowering the per-year tax credit, more dollars flowed to the U.S. Treasury. Congress was loath to forgo those additional funds as the federal deficit deepened.
The drop in how much restaurants could write off per year for improvements to their facilities came as many chains and individual operators were investing heavily in tech-driven enhancements such as self-ordering kiosks and digital menus.
Unlike the Paycheck Protection Program, the key component of the CARES Act for restaurants and other small businesses, the QIP fix has not stirred controversy.
It remains intact under the additional funding bill that the Senate passed Tuesday afternoon.
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