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May Week 1 Slow
May has gotten off to a slow start with independent grocers reporting their same store sales were down 2.75 percent compared to the same period in 2015.
This week the Bureau of Labor Statistics released its April consumer price index report. Food at home prices increased 0.1 percent during the month, increasing modestly after a significant price drop in March. Individual categories that increased were other (+0.5 percent), dairy (+0.4 percent), cereal/bakery (+0.3 percent), and nonalcoholic beverages (+0.3 percent). Largely offsetting the increases were fruits/vegetables (-0.5 percent) and meat/poultry/fish/eggs (-0.1 percent).
In the past 12 months, food at home prices are still down 0.3 percent.
The index for all items increased 0.4 percent, as gasoline prices have started to rise. The index for all items has increased 1.1 percent in the past 12 months.
The Department of Labor also made a big announcement this week, releasing the final rule on new overtime regulations. Now salaried workers earning up to $47,476 annually will be eligible for overtime pay on time worked over 40 hours per week. Previously this threshold was set at $23,660. This is a big ruling affecting around four million workers and could have a significant impact on your business. FMS can help you determine which of your workers are subject to this new regulation and how you can prepare.
To learn more, contact
Mark Ehleben
Vice President, FMS
877-435-9400x1402
marke@fmssolutions.com
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| Same Store Sales
% Change from last year
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| Same Store Sales – Previous Months
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| BGBC Partners Tax Update: Retailer Loyalty Programs
Do you currently have or are thinking about implementing a loyalty program that offers discounts to your loyal customers? In this Tax Update we will cover the basic timing of deductions related to customer loyalty programs and touch on a major victory for taxpayers in a recent court case.
Under many retail loyalty programs, each time a customer or program member purchases a product or service, the customer earns points. Once a specified threshold is reached, a customer receives a reward card or certificate that can be used to purchase any item in a store (or online), for discounted merchandise or services. The reward card or certificate generally has no cash value and expires within one year or less of issuance. Frequent-buyer-type programs reward selected customers with redeemable store credits for future purchases.
For accrual basis taxpayers the question is “when are these rewards deductible”? In order for a liability to be incurred there are three tests that must be passed (IRC 461)- all the events have occurred which fix the fact of the liability,
- the amount of the liability can be determined with reasonable accuracy; and
- economic performance has occurred
If the taxpayer's liability is to pay a rebate, refund, or similar payment to another person (whether paid in property, money, or as a reduction in the price of goods or services to be provided in the future by the taxpayer), economic performance generally occurs as payment is made to the person to which the liability is owed. At this point it would be deductible.
In the court case mentioned above, the taxpayer, Giant Eagle, wanted to accelerate their deduction since customers were not redeeming their rewards in the year issued. Giant Eagle argued that under the recurring item exception, certain recurring items can be deducted for a tax year, even if economic performance has not been met, if:- at the end of the tax year, all events have occurred that establish the fact of the liability and the amount can be determined with reasonable accuracy
- economic performance occurs on or before the earlier of the date that the taxpayer files a return (including extensions), or the 15th day of the ninth calendar month after the close of the tax yea
- the liability is recurring in nature an
- either the amount of the liability is not material or accrual of the liability in the tax year results in better matching of the liability against the income to which it relates than would result from accrual of the liability in the tax year in which economic performance occur
In a 2-1 decision, the Court of Appeals for the Third Circuit reversed the Tax Court and ruled that a retailer that issued loyalty discounts to its customers, was entitled to deduct its liabilities attributable to discounts that were accrued but not redeemed. The Court found that the retailer showed the existence at year-end of an absolute liability and a near-certainty that the liability would soon be discharged by payment, and that those two elements are all that is required under the “all events” test.
Of course, applying this general Court principle to your unique set of facts must be handled with care. Therefore, it would be a good idea to consult your CPA. Otherwise, instead of spending time gaining more loyal customers, you may spend too much time with nosey IRS auditor.
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).
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| For More Information,
Contact Mark Ehleben
877-435-9400 x1402
marke@fmssolutions.com
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