Our client owns and operates more than 80 quick serve restaurants, including Taco Bell and Pizza Hut locations, across the United States. Many of their restaurants recently completed minor renovations to keep the stores cosmetically fresh and attractive for customers and consistent with the current brand requirements. Because of the extensive amount of capital expenditures incurred, we recommended that the Baker Tilly national fixed asset planning team review the tax depreciation schedules.
Through the review of the tax depreciation schedules, the Baker Tilly team identified both currently deductible repairs and maintenance costs as well as accelerated depreciation reclassification as areas of opportunity. After thoroughly reviewing supporting cost and scope documentation, and discussions with the client’s real estate department, we implemented the new repairs and maintenance regulations and reclassified qualifying property to the shorter restaurant property recovery period through changes of accounting methods.
As a result of our fixed asset review, our client received $7 million in additional tax deductions and saved more than $2 million in tax dollars, including a retroactive catch-up adjustment for prior years. We also provided our client with a customized matrix that helps identify what qualifies as a repair and maintenance cost versus a capitalized asset on a prospective basis. Our client will continue to benefit from repairs and maintenance regulations in the future now that they have been adopted.
For more information on this topic, or to learn how Baker Tilly retail specialists can help, contact our team.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.