The bill would give dealerships up to three years to replace their inventory before having to pay taxes on inventory sales from 2020 or 2021.

WASHINGTON — U.S. Reps. Dan Kildee, D-Mich., and Jodey Arrington, R-Texas, plan to reintroduce legislation Wednesday that would provide tax relief to dealerships that use the “last in, first out” inventory accounting method and have struggled to maintain inventory levels because of the global semiconductor chip shortage.

The bill — known as the Supply Chain Disruptions Relief Act — would give dealerships up to three years to replace their inventory before having to pay taxes on inventory sales from 2020 or 2021, giving dealers time to restock their inventories as the chip shortage eases and auto production returns to pre-pandemic levels.

The bill is identical to legislation introduced by Kildee last year.

The latest effort comes after the Senate in December unanimously passed its version of the bill, which was introduced in late April by Sen. Sherrod Brown, D-Ohio, following the introduction of Kildee’s bill earlier that month.

However, the House adjourned at year end without voting on it because of timing issues and a constitutional clause that requires revenue measures or tax bills to start in the lower chamber, Kildee told Automotive News.

“We would have had to go through a pretty difficult procedural process and hold both the House and the Senate in [session] in order to get this done,” he said in an exclusive interview Monday.

“It wasn’t that it was unhelpful,” Kildee said of the Senate vote. “It just obviously didn’t come to us in a fashion and at a time that allowed us to take it up, given the procedural constraints.”

Path unclear
Kildee said he expected the Senate’s prior passage of the bill will help his renewed effort this year. However, in the new Congress, with Republicans controlling the House and Democrats holding a slim majority in the Senate, the bill’s path forward is less clear.

“There’s a bit of uncertainty here in Congress right now, so while I think logic says we should be able to move it, obviously, we can’t rely on that alone,” Kildee said. “We’re going to have to push.”

Last year, the bill was co-sponsored by more than 170 Democratic and Republican House lawmakers. Kildee said he’ll be working to get a similar level of bipartisan support.

“Then we’ll look for the right vehicle. If there is a tax package that is moving, obviously, that’s one way to do it,” he said. “I’d like to see it move sooner rather than later. If it comes to the point where we think there’s an opportunity to do this as a standalone piece of legislation, we’ll take it.”

Businesses on LIFO — a tax deferment strategy used by about half of the nation’s new-vehicle dealerships — must maintain a sufficient level of inventory at year end to avoid triggering a potentially large income tax bill.

But production issues related to COVID-19 and the microchip shortage greatly reduced the flow of new vehicles to dealership lots and curtailed inventories starting in 2020 and worsening in 2021. That made the long-deferred income suddenly taxable at federal and state levels.

For some dealers, the LIFO recapture has led to additional tax payments from $100,000 to $2 million or more during the 2022 filing season that covered 2021 tax returns.

The National Automobile Dealers Association, which has been lobbying Congress and the Biden administration for LIFO relief on behalf of new-car dealers, told Automotive News in December it will work with the lawmakers who supported last year’s bills “to build on our momentum and move the legislation as soon as possible.”

To be sure, U.S. dealership profitability rose to record-high levels in 2020 and 2021, fueled by tight inventories and high per-vehicle margins. When asked whether he has faced criticism about the need for LIFO relief given the record annual profits, Kildee said there will always be exceptions.
“That’s why we tried to make the point that most car dealerships are not these large, well-capitalized conglomerates but are small, family-owned, literally generational companies, for which this event is a big hit,” he said. “So I get it. I understand it. But the majority of the folks we’re trying to help don’t fit that category. They’re struggling to get by.”

Arrington said he was proud to work with Kildee to ensure “we grant temporary and targeted relief to those who cannot replenish their inventory at no fault of their own.”

“Allowing these small businesses to build back their inventory and spread out their tax liability will not only help stabilize prices,” he said, “but it will also help keep workers on payroll while manufacturing and supply chains continue to recover.”