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Shopping Mall Fixtures Seek Aid as Pandemic Hits Retail (Correct)

July 10, 2020, 8:45 AMUpdated: July 14, 2020, 8:27 PM

Industry lobbyists are pushing Congress to expand Covid-19 relief tax breaks that provided a liquidity bump to some of the nation’s largest retailers, as the pandemic has shuttered long-struggling shopping malls across the U.S.

The lobbying push comes as dozens of retail chains—such as Urban Outfitters, Abercrombie & Fitch, Gap, and Express—have disclosed benefits from the CARES Act (Public Law 116-136), in some cases totaling hundreds of millions of dollars. The typical fixtures of American malls often took advantage of a provision allowing companies to carry losses back to earlier years to trigger refunds of previous taxes paid, as well as a tax credit meant to discourage employee layoffs.

Retail sales have jumped, and the sector’s employment has climbed in recent months after steep drops earlier in the spring. But the wave of Covid-19 retail bankruptcies has continued, with Brooks Brothers Group Inc. and Sur La Table Inc. filing for Chapter 11 on Wednesday, after household names like J.Crew, J.C. Penney, and Neiman Marcus did so earlier this year.

With some states halting or reversing the relaxation of public health restrictions, there is “a lot more angst and tension with these additional closures, and some haven’t even opened,” said Phillips Hinch, vice president of tax policy at the International Council of Shopping Centers.

“We’re going to see that this virus is not done yet and that there probably is going to be more relief needed,” he said.

Lawmakers and the Trump administration are set to pick up negotiations on another relief package later this month. Treasury Secretary Steven Mnuchin has said the next relief package should be “much more targeted” toward areas of the economy that continue to struggle. Retail lobbyists are making the case that their industry should be a target of that upcoming aid.

“What we have been arguing to Congress on all of these things is, ‘We need liquidity,’” said Rachelle Bernstein, vice president and tax counsel at the National Retail Federation. “The malls all got closed. It’s very obvious what’s happening there.”

Big Benefits Reported

The industry lobby’s main asks for the next relief package build on CARES Act provisions that have already delivered big benefits to major publicly traded retailers.

Bloomberg Tax identified 15 retailers that reported taking advantage of a tax code change that allows corporations to shift losses from this year, 2019, and 2018 back five years to trigger refunds for taxes paid in more profitable years.

That includes Macy’s Inc., which reported a $576 million first-quarter tax benefit that included this item and a separate accounting charge, and Nordstrom Inc., which reported $275 million in taxes receivable as a result of this benefit. Children’s Place Inc., Guess? Inc., and leather goods and jewelry seller Fossil Group Inc. reported smaller benefits in the tens of millions.

J.Jill Inc., Steve Madden Ltd., and Dick’s Sporting Goods Inc., among plenty of others, said they planned or already elected to defer the employer portion of Social Security taxes under the CARES Act. Party City Holdco Inc., Dillard’s Inc., and Kohl’s Corp. were among those reporting they benefited from a tax credit created by the law that’s meant to incentivize companies to retain and keep paying their employees through the crisis.

Best Buy Co. Inc. reported $69 million in reduced expenses as a result of those employee retention credits, while L Brands Inc.—which counts Victoria’s Secret and Bath & Body Works among its flagship brands—said it recognized $52 million of payroll tax benefits from the CARES Act.

Retailers, especially apparel companies, frequently mentioned CARES Act tax benefits in their financial disclosures, according to researchers who analyzed filings from more than 1,800 public companies. For example, just over a quarter of retailers in the sample and 42% of apparel companies highlighted the benefit of carrying back losses, according to sector-by-sector data shared with Bloomberg Tax by one of the study‘s co-authors, John Gallemore.

The research likely underestimates use of the law’s tax breaks because public companies only report material benefits to shareholders and “materiality is in the eye of the beholder,” said Gallemore, an associate professor of accounting at the University of Chicago Booth School of Business.

K Street Ready for Next Round

Dave Koenig, vice president for tax at the Retail Industry Leaders Association, said he wasn’t surprised by the prevalence of the loss and employee retention credit mentions in retailers’ disclosure forms. RILA represents some of the nation’s largest retailers, including Best Buy, Gap Inc., and Target Corp.

“In our advocacy efforts, both in the CARES Act and going forward, those are the top items that folks have been wanting us to focus on,” Koenig told Bloomberg Tax.

RILA urged congressional leaders to extend the CARES Act’s loss carryback period to 10 years from five years and expand the employee retention tax credit.

The group also suggested a new tax credit to offset the cost of increased cleaning and reconfiguring stores to reduce the risk of virus transmission, an idea that has some support on Capitol Hill. A pair of House Ways and Means Committee members in late May proposed (H.R. 7079) a tax credit of up to $25,000 per location, with a maximum of $250,000 per business entity, to cover higher cleaning and disinfecting costs.

RILA and the National Retail Federation are both urging lawmakers to help companies get refunds for their 2020 net operating losses more quickly, with the latter providing members a tool to request this action on its website.

“The retail industry, which supports one in four U.S. jobs, is dramatically impacted by the coronavirus pandemic,” the NRF-authored form letter reads. “I ask that Congress modify the net operating loss provision to allow struggling retailers to cash out their 2020 operating losses sooner so they can stay in business until customers can safely return to stores.”

—With assistance from Faris Bseiso.

(Corrects July 10 story to clarify tax benefits reported by Abercrombie & Fitch and others in second paragraph.)

To contact the reporter on this story: Lydia O'Neal in Washington at loneal@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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