How will new tax bill impact dealer market?

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Updated Dec 15, 2017

As Congress puts the finishing touches on its new tax bill, The Wall Street Journal reported Thursday that equipment dealers in the agricultural and construction industry are at odds on how proposed tax changes to business interest expenses and inventory deprecation calculations could impact the equipment industry.

The WSJ reports current tax laws allow dealers—such as farm implement facilities and commercial truck dealerships—to deduct 100 percent of interest accrued on equipment purchased to display at locations. In the trucking market this typically impacts only a small number of units, but in the ag industry where most new equipment is sold on site, it has been an incredibly useful tool.

The bills first proposed in both chambers of Congress slashed this deduction to 30 percent, but thanks to agricultural industry backlash, a late exemption to the cut for dealers was added to the House bill this week.

But in creating a solution for one industry the House also developed a problem for another. In updating its initial bill, WSJ reports the House removed another feature that would allow dealers the ability to immediately write off the cost of units purchased—a provision that could be increasingly useful for dealers operating in the lease and rental market.

The construction industry has responded with a request to the House to be excluded from the dealer exemption and accept the bill as first written—accepting the altered interest deduction to gain the immediate write off tool.

How the trucking industry responds remains to be seen.

The National Automobile Dealers Association (NADA) has publicly spoke out in support of the House’s dealership exemption and the agriculture industry’s efforts, stating the updated House bill “recognizes the importance of preserving interest deductibility for floor plan financing because limiting this type of business interest would disproportionately hurt small business auto, boat, RV and motorcycle retailers, particularly during an economic downturn.”

The American Truck Dealers (ATD) are conspicuously absent from NADA’s statement, but did speak out in support of LIFO and Like-Kind Exchanges (LKE) in August.

Regarding the latter, ATD states LKEs have existed in Federal tax code since 1921, and allow truck dealers to “defer the recognition of gain on the exchange of existing business assets (i.e. older leased trucks) when replacing them with new products (i.e. new leased trucks). This allows businesses to maintain their reinvestments in their operations and minimize borrowing.”

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