Removable displays mean tax advantages

Store Equipment & Design, June, 2000 by Gary Eimerman

In addition to my capacity as a tax advisor, I am also a consumer, and as such, have recognized the importance image plays in the success of any retailer. This is certainly apparent in the supermarket trade press; from advertisements from retail store decor specialists to the actual magazine that you are now reading, image is a constant theme. What a retailer may not know is that some of the most effective ways to build image can also mean tax savings opportunities.

A popular way to establish an image as a purveyor of particular items while increasing sales is to set up a particular area of a store--perhaps a food court or specialty food area. Typically, this area will present a theme, drawing customers into the area and stimulate buying by keeping the focus on a particular group of products. Setting this theme often requires a number of improvements that, if done correctly, will not just boost sales but will also provide fantastic opportunities in tax planning.

PERSONAL PROPERTY

To maximize your tax savings opportunities, your tax advisor should identify as personal property the greatest possible portion of the costs associated with themed areas. Items that fall into that category include identity symbols and improvements used to create special conditions such as a theme, ambiance or environment--provided they are not permanent in nature. In the case of a specialty food court, besides the cases, counters, POS equipment and POP displays that were discussed three month ago in my first column, many of the improvements related to the theme may also qualify for faster recovery. These may include such things as awnings, special lighting used for the displays, decorative applications, specialty flooring, knick-knacks used in creating the theme, signage used throughout the facility as well as electrical connections for these items. However, it's extremely important to remember that these items must be removable and not part of the building structure.

Even if your store does not have these dedicated sales areas, there are many specialty point-of-purchase areas, designed to increase sales exposure, that can qualify for this kind of tax treatment. Examples might be a display area with accent lighting intended to attract customers or enhance the visual appeal of the products for sale, or a produce area with an open market motif.

How can you take advantage of the tax provisions available to you? A good rule of thumb is that you probably should look into the option if you are about to change something or you decide you want to develop a theme. There's a good possibility that the expenditures involved could qualify as personal property. Keep in mind that personal property is not merely equipment--it also includes the cost of installation. Connections that are installed purely to support the operations of the area most likely would qualify as personal property; if canopies or wheeled carts are installed, these accessories should be treated as personal property as well.

A gray area develops when dealing with wall tiling and similar types of improvements. There have been numerous instances where certain types of surface applications have been treated as personal property. Therefore, it is especially important that your tax advisor completely understand the nuances of the current tax laws. This understanding, combined with careful planning, makes your investment in image-building worth more than just the boost in sales it creates.

Gary Eimerman is the Midwest director in charge of PricewaterhouseCoopers' Cost Engineering and Specialty Tax Consulting Practices.