COVID-19 started to make U.S. headlines in early March, causing an upheaval for employers as state lockdowns began across the country to limit the spread of the virus and give hospitals a chance to cope. Convenience stores, considered “essential businesses,” remain open even in states with shelter-in-place restrictions, but all stores are facing a new normal.
COVID-19 is caused by a member of the coronavirus family called SARS-CoV-2. COVID is short for coronavirus disease.
As the virus spreads across the U.S., lawmakers are drafting measures to blunt the economic fallout from COVID-19, and savvy c-stores are looking to tax credits and more to help them through this time.
The Coronavirus Aid, Relief and Economic Security (CARES) Act contains provisions to help c-stores weather the impending crunch, providing zero-interest loans, tax breaks and other subsidies. It gives one-time direct payments to Americans of $1,200 per adult with income below $75,000, $2,400 per married couple and $500 per child. Above the ceiling, payments will be gradually reduced until the $100,000 cutoff for individuals.
An employee retention tax credit estimated to provide $50 billion to businesses that retain employees on payroll and cover 50% of workers’ paychecks up to $10,000 is included. Businesses can now defer payment of the 6.2% Social Security payroll tax for up to two years.
The bill also earmarked $349 billion for loans to small businesses — with funds to be spent on rent, payroll and utilities treated as a grant that does not have to be repaid. Also in the bill are business tax cuts that include an increase in the deductions for interest paid by a business from the 39% level created by the Tax Cuts and Jobs Act to 50%.
Plus, the Family First Coronavirus Response Act (FFCR), which became law earlier in March, and the ongoing programs created by the Trump administration, along with current rules, can help every convenience store survive the COVID-19 pandemic.
The earlier FFCR includes a short-term expansion of paid sick leave. Employers have long been able to claim a tax credit — a percentage of the worker’s wages — for providing paid family and medical leave to employees. Today, a new provision requires certain employers to pay sick leave to specified employees, while receiving a compensating 100% tax credit. Plus, there’s a requirement that family-leave wages be paid to certain employees with a temporary 100% tax credit and similar tax credits for self-employed persons.
Financial ToolKit
NOL: Still in the tax arena, a Net Operating Loss (NOL) occurs when a c-store business has more tax deductions than taxable income. Unfortunately, the rules governing NOL write-offs no longer offer the “carryback” option that formerly provided an infusion of badly needed cash refunds of previously paid taxes. Today, most NOLs arising in tax years after 2017 can only be carried forward — with a limited deduction of 80% of income.
Business Interruption Insurance: C-stores should already have this strategy in place. This insurance replaces business income lost in a disaster. It’s not sold as a separate policy but is either added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider. Covered are profits, usually based on earlier performance, operating expenses, temporary re-location of the operation and reimbursement for reasonable expenses that allow the business to continue operating while getting back on its feet. Employee wages, taxes and loan payments are usually covered.
Inventory Considerations: Inventory that can’t be turned over may have to be evaluated for “impairment.” Changes in prices and reduction in demand must also be considered. The result: inventory costs being written off other than as “cost of goods sold.”
Credit Options: A pre-established line of credit allows c-stores to borrow in increments as needed, repay it and borrow again as long as the credit line remains open.
Loans & Adjustments: The U.S. Small Business Administration (SBA) already has the authority — and available funding — to make over $7 billion in loans to qualifying small businesses to assist economic recovery. More recently, the government will be providing $50 billion to the SBA to aid small firms struggling because of supply disruptions or lower sales because of the virus.
Keeping in mind that “lost income” is not a legitimate tax deduction, other provisions in these tax laws may help c-store operators recover financially. For example, because estimated taxes are usually based on projected income early in the tax year, adjustments may be in order.
As the ever-evolving fight against COVID-19 continues to emerge, attention must be paid to new developments. And, as always, the ever-changing response to the pandemic and the complexity of the rules when dealing with its economic impact make professional assistance advisable.