The retail industry has faced many challenges recently in the face of the new economy. After overcoming the transition from brick & mortar to the new cyber economy, retailers are now faced with competing against lower margin offerings from Amazon and other online behemoths. These lower margins are driving retailers to search more ways to reduce costs and improve the bottom line. There are many unique characteristics of the retail industry where these saving can be found.
Retailers invest significant capital into store improvements and expansions, hardware and software infrastructure, distribution facilities and inventory. One area we often find opportunities to save is related to the overpayment of sales tax on many of their purchases. The multi-state nature of the industry makes it difficult to follow constant state tax law changes. There are many sales tax exemptions available to retailers related to leasehold improvements, software and digital products.
There are several significant federal tax incentives available to retailers that make large capital investments. Companies that perform cost segregation studies on their building and leasehold improvements can significantly accelerate depreciations from 39 years to 5, 7, or 15-year lives. A cost segregation study is an engineering analysis of the separate component parts of a construction project. Retailers can also see more green from green energy projects. The section 179D Energy tax Deduction allows retailers an additional deduction for improvements to building envelope efficiencies.
The growth in gift card sales and revenues has presented a unique problem to retailers when determining how to handle “breakage.” Many states have upgraded their unclaimed property compliance groups to specifically target retailers’ unused gift cards. Of course, from every new business challenge emerges a business planning opportunity. Read more about gift card challenges and planning opportunities.