[Congressional Record Volume 153, Number 140 (Thursday, September 20, 2007)]
[Extensions of Remarks]
[Pages E1940-E1941]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         INTRODUCTION OF A BILL

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                         HON. KENDRICK B. MEEK

                               of florida

                    in the house of representatives

                      Thursday, September 20, 2007

  Mr. MEEK of Florida. Madam Speaker, I am pleased to introduce H.R. __ 
which includes ``new construction'' as qualified restaurant property to 
take advantage of the reduction from 39\1/2\ years to 15 years for 
depreciation. H.R. __ also makes permanent the already existing 15-year 
depreciation for improvements to restaurant property.
  Madam Speaker, depreciation schedules for commercial real estate have 
not been significantly revised since they were established. Currently, 
commercial real estate generally has a 39\1/2\-year depreciable life 
for the original building and for any subsequent renovations or 
improvements to the building. Changes have been made in recent years to 
allow certain industries that directly compete with restaurants to 
benefit from shorter schedules. These schedules range from seven years 
for food outlets located in amusement parks to 15 years for those in 
gas stations and convenience stores. This favorable depreciation 
schedule has allowed convenience stores to expand and improve their 
foodservice options.
  The American Jobs Creation Act of 2004 established that restaurants 
could depreciate qualified restaurant building improvement costs over 
15 years for property in place by

[[Page E1941]]

the end of 2005. Just as it had intended, this provision spurred a 
tremendous amount of economic activity in both the restaurant industry 
and the overall economy. According to the U.S. Census Bureau, the 
restaurant industry spent more than $7.4 billion on new structures and 
building improvements in 2005--a 42 percent increase over the $5.2 
billion spent in 2004. The additional spending--fueled by a shorter 
depreciation schedule--created thousands of jobs in construction-
related industries across the country. However, while enhanced 
depreciation for new restaurant construction was originally included in 
this legislation, it was subsequently removed for reasons that remain 
uncertain; thus only leasehold and restaurant improvements were 
included in the final package.
  The Tax Relief and Health Care Act of 2006 extended the existing 
combined qualified leasehold and restaurant improvement provision for 
costs incurred through the end of 2007. These provisions do not cover 
new restaurant construction in stand-alone buildings but only apply to 
restaurants leasing space within larger commercial buildings, and to 
improvements to existing restaurant structures.

  Because the depreciation changes that have been made in the past do 
not apply to stand-alone/owner occupied buildings, a significant sector 
of retail businesses is at a distinct economic disadvantage, as they 
must continue to depreciate their buildings, and any improvements made 
to them, over a 39\1/2\-year schedule. This recovery period is 
particularly onerous for the restaurant industry because most 
restaurants remodel and update their building structures every 6 to 8 
years--a much shorter timeframe than is reflected in the current 
depreciation schedule. Each periodic improvement must in turn be 
depreciated over its own 39\1/2\-year schedule, resulting in concurrent 
depreciable lives. This ``layering'' in turn yields an actual net tax 
value in excess of the restaurant's fair market value.
  Restaurants must constantly make changes to keep up with the daily 
structural and cosmetic wear and tear caused by customers and 
employees. On any given day, nearly half of all American adults are 
patrons of the restaurant industry. Restaurants get more customer 
traffic and are open longer than other commercial businesses. This 
heavy use accelerates deterioration of a restaurant building's 
entrance, lobbies, flooring, restrooms, and interior walls. Restaurant 
built structures therefore experience more wear and tear unlike that 
borne by any other types of buildings in the retail industry.
  These renovations and structural improvements made to restaurants 
every 6 to 8 years come at an average cost of $250,000 to $400,000. 
This year alone the restaurant industry is expected to spend in excess 
of $5.5 billion on capital expenditures for building construction and 
renovations. The restaurant industry is projected to spend over $70 
billion over the next 10 years for building construction and 
renovations. These expenditures in turn have a significant economic 
impact on the construction industry, with whose members restaurants 
contract to perform the new construction and renovations. According to 
the Bureau of Economic Analysis, every dollar spent in the construction 
industry generates an additional $2.39 in spending in the rest of the 
economy, while every $1 million spent in the construction industry 
creates more than 28 jobs in the overall economy.
  Madam Speaker, it is time to equalize the depreciation schedules for 
new construction with those for combined qualified leasehold and 
restaurant improvements to make tax policy in this area more uniform, 
consistent, and fair. H.R._ will accomplish this, and put new 
restaurant construction on a par with leasehold and improvements with 
regard to depreciation. H.R._ helps a service industry--one that will 
provide work for approximately 12.8 million people in the United States 
in 2007.

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