The REDUCE Food Prices Act is a tax measure designed to encourage the creation and operation of small food retail businesses in markets with high concentration of food retailers and relatively little competition. It achieves this by expanding a range of federal tax incentives—rehabilitation credits, wage-based credits, depreciation bonuses, and the pass-through deduction—specifically for “qualified small food retail businesses.” The bill also adds a new credit (the New Food Retail Business Credit) intended to stimulate investment in new small food retail ventures. A core feature is defining eligibility around a “low-competition” area using the Herfindahl-Hirschman Index (HHI) for the retail food sector and requiring that most of the business’s receipts come from food retail. The provisions apply to property or businesses placed in service after enactment. In short, if adopted, the bill would make it more financially attractive to start or rehabilitate small food retail stores in areas with few competitors, and it would boost incentives for hiring, investing in infrastructure, and using favorable tax provisions for these businesses.
Key Points
- 1Increased rehabilitation tax credit: For a qualified small food retail business, the rehabilitation credit under Code Section 47(e) rises from 20% to 25% for qualified rehabilitated buildings placed in service, with the “qualified small food retail business” defined to include specific size and revenue criteria and located in a low-competition area (HHI ≥ 1,400 in the county’s retail food sector).
- 2Definition of qualified small food retail business: To qualify, a business must (1) meet the Section 38(c)(5) size/threshold test (with a higher threshold noted in the bill), (2) derive at least 70% of annual gross receipts from the sale of food or produce, and (3) be in a low-competition area as defined above. The low-competition condition uses the USDA/ERS HHI measure.
- 3Expanded Work Opportunity Tax Credit (WOTC) for qualified small food retailers: For wages paid by a qualified small food retail business, the annual wage-based credit amounts are increased (from $6,000/$12,000/$14,000/$24,000 to $8,000/$14,000/$16,000/$26,000 for the four tiers of eligible employment).
- 4Enhanced bonus depreciation for qualified small food retailers: Section 168(k) would provide higher bonus depreciation percentages for property placed in service by a qualified small food retail business (70%/50%/30% versus the current 60%/40%/20%), and the same uplift applies to plants bearing fruits and nuts planted or grafted by such businesses. This applies to property placed in service after enactment.
- 5Increased QBI deduction for qualified small food retailers: The Section 199A deduction (the 20% pass-through deduction) is increased to 25% for qualified small food retail businesses.
- 6New New Food Retail Business Credit (Sec. 45BB): A new 15% investment credit for new small food retail businesses, based on qualified investment amounts for capital investment in the business’s premises, facilities, or equipment. The credit would be part of the general business credit, with definitions for a “new food retail business” (a qualified small food retail business that began operations in the prior three taxable years) and for “qualified investment amounts.” The credit applies to taxable years beginning after enactment.
- 7Effective date: Each provision applies to property placed in service or businesses beginning after the date of enactment.