[Congressional Record Volume 145, Number 114 (Thursday, August 5, 1999)]
[Senate]
[Pages S10486-S10487]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. NICKLES:
  S. 1562. A bill to amend the Internal Revenue Code of 1986 to 
classify certain franchise operation property as 15-year depreciable 
property; to the Committee on Finance.


         Small Business Franchise Property Recovery Act of 1999

  Mr. NICKLES. Mr. President, today I am pleased to introduce the 
``Small Business Franchise Property Recovery Act of 1999.'' This bill 
would amend the Internal Revenue Code of 1986 to classify certain 
franchise operation property as 15-year depreciable property.
  As my colleagues may recall, the recovery period for real estate 
property and building improvements was generally extended to 39 years 
in 1984 primarily for revenue reasons. Since that time, growing 
concerns have been voiced that having such an extended recovery period 
is neither justifiable nor based on sound tax policy. In many cases, 39 
years is far longer than the normal use life of the property. Congress 
has directed the Treasury Department by early next year to provide us 
with a study and recommendations for overhauling the tax code's 
depreciation provisions. I look forward to receiving the Treasury's 
report, but in the interim, I do not believe we should defer addressing 
obvious depreciation inequities. Therefore, I am offering this bill now 
to shorten the depreciation period for real property and buildings for 
all franchisees from 39 years to 15 years.
  Mr. President, franchisees-such as those who operate quick-service 
food restaurants generally enter into a franchise agreement with the 
franchisor that terminates after a set period of time (e.g., 15 or 20 
years). There typically is no guaranteed right to renew the agreement. 
Franchisees often must undertake major renovations and improvements to 
the property at least once during the franchisee period.
  Under current law, the real estate and buildings owned by franchisees 
generally must be written off over 39 years. This extended depreciation 
period bears no relation to economic reality and is roughly double the 
normal use life of the franchise property.
  The ``Small Business Property Recovery Act of 1999'' would reduce the 
39

[[Page S10487]]

year recovery period for such franchisee property to 15 years. This 
shorter period, which tracks the convenience store precedent, would 
essentially reflect the property's use life. This would be fairer to 
the small and closely held businesses that operate quick-service 
restaurants and other franchises. It also would enable them to free-up 
more capital to expand their businesses and create more jobs.
  I urge my colleagues on both sides of the aisle to cosponsor this 
bill. I would also note that Representative Ramstad recently has 
introduced a similar bill, H.R. 2451, in the House. I look forward to 
working with him and others to help secure the passage of this 
legislation.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1562

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Small Business Franchise 
     Property Recovery Act of 1999''.

     SEC. 2. CLASS LIFE FOR FRANCHISE OPERATIONS.

       (a) In General.--Section 168(e)(3)(E) of the Internal 
     Revenue Code of 1996 (classifying certain property as 15-year 
     property) is amended by striking ``and'' at the end of the 
     clause (ii), by striking the period at the end of clause 
     (iii) and inserting ``, and'', and by adding at the end the 
     following new clause:
       ``(iv) any section 1250 property which is a franchise 
     operation subject to section 1253.''.
       (b) Conforming Amendment.--Subparagraph (B) of section 
     168(g)(3) of such Code is amended by inserting after the item 
     relating to subparagraph (E)(iii) in the table contained 
     therein the following new item:

  ``(E)(iv).......................................................15''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to property which is placed in service on or 
     after the date of the enactment of this Act and to which 
     section 168 of the Internal Revenue Code of 1986 applies 
     after the amendment made by section 201 of the Tax Reform Act 
     of 1986. A taxpayer may elect (in such form and manner as the 
     Secretary of the Treasury may prescribe) to have such 
     amendments apply with respect to any property placed in 
     service before such date and to which such section so 
     applies.
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