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February Week 2

   
There was no improvement to be had in the second week of February, as same store sales were down 4.73 percent compared to the same period in 2016. It’s been a slow first few weeks of February for independent grocers.

The Bureau of Labor Statistics released its January consumer price index report, which showed that food at home prices were unchanged in January. While food at home prices are still down 1.92 percent in the past 12 months, the pace of deflation has been slowing since October of 2016.

Individual food at home categories that increased in January were dairy (+0.8 percent), meat/poultry/fish/eggs (+0.7 percent), and other (+0.2 percent). Declining were fruits/vegetables (-1.7 percent), nonalcoholic beverages (-0.3 percent), and cereal/bakery (-0.1 percent).

The index for all items increased 0.6 percent in January and 2.5 percent in the past 12 months as energy prices continue to rise.

2017 Independent Grocers Financial Survey Open
   
This collaborative effort between FMS and the National Grocers Association is in its twelfth year and has become more important than ever. This survey is the only one of its kind to deliver the type of benchmarking and industry knowledge critical to understanding our landscape.

We understand the value of your time, which is why we offer a free copy to everyone who participates. We hope you’ll become part of this important study.

All the information you submit to us is completely anonymous. No identifying information will be included in the survey or shared with anyone.

Participate in the 2017 Independent Grocers Financial Survey

Alternatively, you can download and print the survey.

Same Store Sales        
% Change from last year

Same Store Sales – Previous Months

BGBC Partners, LLP Tax Update: Receipt of Non-Taxable Grants
When businesses operating as corporations are seeking to relocate or expand, an often- overlooked funding source is a direct contribution by a city or county.  Government entities or other community groups may have an interest in attracting a grocery store to underserved areas in their community, and are often willing to pay grant money as an incentive to get the business there.
 
If the funds are contributed to the capital of the corporation, the funds may qualify for a little-known taxable income exclusion in the tax code, and this exclusion is the topic for this week’s Tax Update.
 
Section 118 of the tax code was enacted to encourage public-private community ventures by providing a taxable income exclusion for capital infusions by government agencies. It is very important to note that this exclusion only applies to corporations and not partnerships or other legal entity structures. In addition, the exclusion results in a corresponding reduction in the tax basis of the related property which may result in reduced depreciation deductions.
 
The theory behind the nontaxability of these grants is that the grant is similar to a nontaxable shareholder contribution to capital.  The receipt of these kinds of grants are considered non-shareholder contributions to capital if they meet certain criteria.  Typically, contributions are made by shareholders, but these non-shareholders contributions are viewed by the tax code as equity and not taxable income.
 
Grants are typically given to benefit the community that the corporation operates in.  When receiving grant money, the Courts have established a five-part test to determine whether a non-shareholder payment to a corporation can be considered a contribution of capital and therefore not taxable.

The prongs of the five-part test are as follows:
  1. The payment must become a permanent part of the corporations working capital
  2. The payment must not be compensation for specific goods or services
  3. The payment must be bargained for.
  4. The payment must result in a benefit to the taxpayer commensurate with its value, and
  5. The payment must be employed in or contribute to the production of income.

As noted above, the basis of related property is reduced which can reduce depreciation deductions.  Therefore, if a store-owner receives a $100,000 grant to build a store in a certain community, the grant is excluded, but the building is reduced by the $100,000.
 
Consequently, the numbers should be crunched to determine if this strategy is a fit.
 
This is an opportunity that is available if the right set of circumstances are present.  If carefully structured, a store or other business owner and a surrounding community may both benefit.  However, an experienced CPA should be consulted to ensure that a particular project qualifies for the exclusion and that the existing tax rules and regulations are complied with.  

BGBC Partners, LLP is a full service certified public accounting and business consulting practice.  

For more information, contact
Brad Bell, CPA
or Steve Reed, CPA/ABV/CFF at BGBC Partners, LLP (317-633-4700).
For More Information,
Contact Mark Ehleben
877-435-9400 x1402
marke@fmssolutions.com
8028 Ritchie Highway | Suite 212 | Pasadena, MD 21122


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