The retail industry is buzzing with talk about the new tax reform. While the Senate implements the final details, many retailers are still wondering if and how the new reform will impact their business operations. If you fall into this category, here’s some good news… the tax reform is being hailed by the National Retail Federation as “a major victory for retailers.” In fact, the reform is poised to significantly reduce taxes on retail businesses – from large corporations to small, local stores – giving retailers the opportunity to enjoy levels of profit that were previously only known to business owners in other industries.
The following three points explain in more detail how the proposed tax reform will benefit both retailers and their employees in the coming years.
#1. Reduced Taxes for Small Businesses
Once the approved tax reform is enacted, US retailers will have the opportunity to significantly increase profits with less taxes and hoops to jump through than there ever were in the past. NRF states that under the new bill, “The corporate tax rate is reduced to 21 percent from 35 percent, and small business ‘pass-throughs’ will receive a 20 percent deduction.” What is a “pass” though? Claiming one’s business as a “pass-through” enables small to mid-size business owners to file taxes under their own individual tax return, instead of filing as a corporate entity, which in turn prevents excessive taxations on small business owners by allowing retailers to forego paying a more substantial corporate tax rate.
#2. Evening the Playing Field for US Retailers
In addition to helping small business owners bypass excessive corporate taxes, the new tax reform will enable US retailers to compete with global ecommerce platforms by offering tax benefits for locally-sourced property over imported goods. According to the Wall Street Journal, “traditional retailers have generally paid higher taxes than online retailers like Amazon, which can often place intellectual property in countries with lower rates and benefit from deductions given to companies that don’t earn a profit.” By favoring locally-sourced products, this reform holds promise for American retailers who do most of their sourcing from within the US. While increased taxation on imports will indisputably benefit certain retailers, it may have negative effects for retailers who do the majority of their business transactions with overseas manufacturers.
#3. More Opportunities to Reinvest in Your Company
Proponents of the new tax reform say that it will add some much-needed fuel to the fire of the American economy by incentivizing sourcing from within the US – thus increasing the number of jobs available to American retail employees and manufacturers alike. The reform will additionally give retailers the opportunity to increase wages for existing employees and improve value for shareholders by reducing the amount that’s necessary to pay out for government taxes. The National Retail Federation has been lobbying for such a reform for quite some time, as it will benefit retailers who have, until now, been paying some of the biggest corporate tax rates in American business. “Our priorities were clear,” said Matthew Shay, NRF President & CEO, “reform must jumpstart the economy, encourage companies to invest here in the United States, increase wages and expand opportunities for employees, and protect our small business community, of which the vast majority are retailers. That’s exactly what this legislation will achieve.”
While the new tax legislation will poise certain obstacles for retailers who do the majority of their business overseas – and it is true that the reforms will call for a certain amount of restructuring – the reality is that the tax benefits far outweigh the inconveniences. In time, the reform will enable indie and corporate retailers alike to operate more profitable, fulfilling retail businesses – something any retailer can appreciate.
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By Nicole Leinbach Reyhle, RetailMinded.com