Tax Bill’s Impact to Vary Greatly Among Sectors : Heavy Manufacturing and Real Estate Seen Hard Hit; Technology, Retailing Win

The sweeping tax bill approved by congressional negotiators over the weekend is expected to have a dramatic impact on American industry. Heavy manufacturing and many real estate developers have railed against the loss of cherished tax incentives. But retailers and technology firms, which have long felt overtaxed, generally have cheered the move to lower overall corporate tax rates. While the enthusiasm of some early corporate tax-reform advocates has waned, some opponents have found the process less painful than anticipated.

With approval of a final bill by Congressional negotiators--and expected approval next month by the full House and Senate--American business is now bracing for this massive overhaul of the nation’s tax system. Here is a look at how various industries will be affected:

Retailing

Retailers traditionally have paid higher taxes than most other industries and strongly endorsed a reduction in the corporate rate.

However, they will suffer a “very harsh” burden because of two provisions in the compromise legislation that not only increase tax liabilities but also complicate record keeping, according to Pamela Pecarich, a partner at the Coopers & Lybrand accounting firm in Washington.

One big negative will be a change in the method of accounting for installment sales. Currently, a retailer recognizes as revenue for tax purposes only those installment payments received in a given year. Under the new bill, merchants would be required to count the revenue at the time of sale.

“Basically, you’re having to pay taxes before you receive money from consumers,” said Michael J. Altier, a lobbyist for the National Retail Merchants Assn. who said the trade group is “very disappointed” in the legislation.

The provision will prove especially burdensome for a retailer such as Sears, where big-ticket hard goods sold on installment plans account for a huge portion of revenue, said Gene Krieger, partner in charge of Price Waterhouse’s tax department in Los Angeles.

Moreover, department stores will have less incentive to offer plans that allow customers to avoid interest charges if they pay off bills within a prescribed period, such as 90 days, because they will have to book the revenue well before they receive it from the customer.

The second provision changes the way retailers account for inventory. Under current law, merchants are allowed to write off immediately certain costs of doing business, such as warehousing costs and personnel expenses.

Under the new legislation, merchants will not be able to write off such peripheral costs in the year in which they were incurred. Instead, a portion will be attributed to inventory that will be left over at year-end and that therefore must be carried forward into the next year for accounting purposes.

Devising a formula to accomplish this change will prove an “administrative nightmare,” noted Waldo H. Burnside, president and chief operating officer of Carter Hawley Hale Stores, the Los Angeles-based parent of the Broadway and Neiman-Marcus.

However, the tax legislators, recognizing this bookkeeping quagmire, did give a nod in the retailers’ direction: The bill urges the Treasury Department to devise simplified methods for applying the rules.

Krieger noted that “if you take the global view that (the tax bill is) good for individuals and gives them more spending money, on balance it will be helpful” for retailers.