Potential Tax Increases and LIFO Recapture
Inform Your Federal Lawmakers of Negative Impact
Congress is about to consider one of the largest tax and spending bills in history. The House and Senate have passed the Democratic-only budget resolution that provides a broad framework for a $3.5 trillion reconciliation tax and spending bill. A “reconciliation” bill is not subject to the filibuster and can be passed by simple majorities.
The Biden Administration has proposed major tax increases that are likely to dampen vehicle sales and hurt small-business, family dealerships. These proposals include increasing individual and pass-through business rates, from 37% to as high as 43.4%. Another proposal would raise the capital gains rates from 23.8% to 43.4% for high earners, which could almost double the rate for owners of pass-throughs who sell their businesses.
The Administration has also proposed eliminating stepped-up basis on inherited assets for gains of more than $1 million ($2 million for married couples), which would needlessly strip working capital from dealerships that are often second and third generation businesses.
Additionally, NADA has petitioned the Treasury Department to exercise its authority to allow temporary LIFO relief for dealerships because government actions during the pandemic triggered a “major foreign trade interruption” that makes inventory replacement extremely difficult. With historically low inventories and the chip shortage caused by the pandemic, many franchised dealers who use the Last-In, First-Out (LIFO) accounting method may face significant unexpected tax liability due to LIFO recapture and circumstances beyond the dealers’ control.
While the Treasury Department has discretion to grant this relief and allow taxpayers to make an election to replace their new-vehicle inventories over a three-year period, it has been reluctant to grant the petition. NADA met with the Treasury officials last week. The next step is to contact Democratic lawmakers, explaining the urgency of the inventory and LIFO recapture problem, and urging them to reach out to the Treasury Department to grant NADA’s petition. For more information see the LIFO recapture issue brief.
Elected officials don’t always understand the contribution dealerships make in federal taxes and how aggressive tax hikes hurt our businesses, employees and communities. This is a key time to contact and meet with lawmakers, especially Congressional Democrats who are writing the Democratic-only tax reconciliation legislation. Democratic members of the tax-writing committees will have a major role.
NADA will provide more details with targeted calls to action as specific plans emerge. For more information on ways to get involved, such as hosting a congressional dealership visit or meeting in your lawmaker’s district office, visit NADA’s grassroots website.
The power of the dealers’ voice is needed now as important decisions are being made that will shape the tax landscape for our business for years to come.
For any questions, contact NADA’s Legislative Affairs office at [email protected] or 202.547.5500
Paul Walser
NADA Chairman
