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Dunkin’ Brands Chairman Nigel Travis sounds like a man on a mission when we sat down for a chat in mid-December. Hardly embracing the concept of retirement, the former Dunkin’ CEO and current board member at three public companies (including Dunkin’) points out he is hot off another phone call with policymakers — Democrats and Republicans — in Washington, DC.
The topic of choice isn’t to get Dunkin’s super caffeinated cold brew coffee served in all government buildings. Rather, Travis is pleading with legislators to reverse what many tax experts believe was a major mistake in President Trump’s 2017 tax code overhaul regarding the depreciation of capital investments. Restaurant executives such as Travis continue to vocally say that the oversight is hurting players in the industry both large and small.
The basic mechanics of the problem are a combination of accounting 101 class meets typical DC lack of understanding.
Under normal accounting guidelines, the cost of commercial real estate is recovered over 39 years using straight-line depreciation (hang in there people, it gets easier to grasp). Prior to Trump’s tax plan, the U.S. Internal Revenue Service offered three exceptions to this straight line depreciation rule. They included: qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. All were eligible for a 15-year deprecation recovery timeline.
These classes of property were also eligible for 50% bonus depreciation.
Trump’s tax plan, in an effort to simplify things, was supposed to consolidate these three classes of property into one item called qualified improvement property. It’s known as “QIP” to restaurant industry experts, and it’s supposed to have a 15-year recovery period for depreciation. But in an oversight, policymakers didn’t assign QIP a 15-year time horizon or make it eligible for bonus depreciation.
The end result: QIP must be depreciated over 39 years. That has placed pressure on the cash flow and profits of restaurants, said Travis. It has also deterred capital investment by small business owners, Travis believes.
A fix to the issue was not included in the year-end $1.4 trillion spending bill that consumed some 2,300 pages despite lobbying from industry veterans such as Travis. Bizarre.
“I think this administration has tried very hard to help small businesses, and I think the Tax and Jobs Act that came out in 2017 was intended to do that. So that has been good, and they have shown flexibility to organization like franchisees,” Travis, 70, told Yahoo Finance. Travis added that the government oversight is having a “terrible effect” on small businesses, especially in the restaurant space.