Starbucks Coffee: Taxes and Technology
Starbucks sought an effective and comprehensive solution to manage their high volume of fixed asset transactions. Once implemented, the tax team’s “closing” process was shortened by the equivalent of two weeks.
Have you ever noticed that most Starbucks stores have a similar look, contemporary feel, and comfortable atmosphere? And, have you ever stopped to think about what’s involved from a business perspective in keeping these stores up to date and consistent?
While, of course, the real estate and construction sides are necessary parts of the process, equally important are the special tax rules that help make ongoing updates to the more than 8,000 U.S. stores financially viable. Starbucks needed a comprehensive, integrated system that could track, depreciate, and classify the thousands of fixed assets distributed throughout their many store locations.
In January, 2014 the Tangible Property Regulations (aka “repair” regulations) modified IRS Sections 162(a) and 263(a). Although the rules for capitalizing and expensing fixed assets became more standardized, the restaurant and retail industries still had complex and nearly insurmountable hurdles to overcome when it came to managing their fixed assets processes. To address these taxpayer concerns, the IRS put out an Industry Issue Resolution (IIR) known as Revenue Procedure 2015-56.
Rev. Proc. 2015-56 provided a special capitalization rule in which restaurants and retailers could immediately expense 75% of any qualified refresh/update expenditure. Starbucks had to find a way to conform to both the repair regulations and the IIR, and to apply these rules to a previously completed cost segregation study representing thousands of transactions per day. Additionally, it was necessary to integrate these asset rules into their capitalization and classification processes. Finding an effective, comprehensive solution to manage their high volume of fixed asset transactions was the first requirement. The second requirement was to ensure full tax regulation compliance, while maximizing tax benefits.
To add to the complexity, Starbucks also had to ensure that these tax regulations were applied correctly. New buildings needed to be identified separately from those that were at least three years old, and store refreshes distinguished from complete store remodels. As a side note, Starbucks refreshes their stores approximately every five years. Rev. Proc. 2015-56 provides these rules of guidance:
- Maintain a contemporary appearance
- Apply a consistent layout among stores
- Conform to current retail standards
- Offer the industry’s most relevant products and services
Because of the high volume of fixed assets throughout their stores, a solution that involved human intervention was not feasible. Starbucks assessed available technologies to satisfy their corporate requirement of tracking and managing millions of transactions per year. Teaming with Bloomberg Tax, they implemented Fixed Assets, expert fixed assets software for managing transactions and depreciation.
Starbucks and Bloomberg Tax worked together to automate the process of evaluating every transaction and applying the appropriate tax regulations. Fixed Assets G/L Integrator (an add-on module also offered by Bloomberg Tax) was implemented to aid in the exchange of data between Fixed Assets and Starbucks’ financial systems, resulting in automation of the entire process.