The Business Top News

NADA fights to save floorplan interest deduction in Senate tax bill

This post was originally published on this site

WASHINGTON — The National Automobile Dealers Association is vigorously trying to whip up grassroots support to block a provision in the Senate’s tax bill that would limit the ability of dealers to write off interest expense on vehicle inventories.

NADA is urging members to contact their senators and explain how limiting deductibility for floorplan financing would hurt most businesses with higher taxes — even when they do not show a profit. NADA officials are also working to convince the Senate Finance Committee to change the bill, as the House did in the tax plan it passed last week.

The Finance Committee’s version would limit deductibility for business interest to 30 percent of adjustable taxable income. Businesses with gross receipts of $15 million or less are exempted.

The proposal is aimed at large corporations that are incentivized by the tax code to use debt — such as lines of credit — instead of raising equity to capitalize their operations. But it would sweep up dealerships in the process.

Some Republicans believe some large U.S. companies are overleveraged and tend to favor debt over equity because they can’t deduct dividends paid on stock, said Steven Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center.

The tax savings would be used to help pay for massive business and individual tax cuts. According to Reuters, the deduction costs the U.S. Treasury $300 million a year.

NADA President Peter Welch on Monday sent a letter to Senate Majority Leader Mitch McConnell, R-Ky., urging the tax bill to preserve the full deductibility of business interest expense, including floorplan interest.



Read more >


“Imposing a rigid formula to limit floor plan interest … is risky, especially when market rates are increasing from historic lows . … This provision would impose unreasonable burdens on retailers who must floor plan to carry inventory. Small-business dealers should not be treated the same as large corporations that choose debt over equity for tax purposes.

“The potential damage from limiting floor plan interest deductibility would not be mitigated by the other provisions in the bill, such as lower tax rates or carryforward provisions. While NADA supports the goals of tax reform, we will not support a bill that does not distinguish between floorplan interest and general business interest,” he said.

Most auto dealers are privately held small businesses that don’t have access to private equity and rely on the interest-only loans from automakers’ finance arms and banks to stock lots with vehicles. Payments on the loans start as soon as the retailer assumes ownership of the vehicle and the principal is paid off as soon as it is sold.

“It’s a specialized type of financing for a specialized product which is high priced, but comes with very low margins,” NADA spokesman Jared Allen said.

Publicly traded dealership groups such as AutoNation could tap equity markets, but choose floorplan financing “because it is so much more effective and efficient,” he added.

Automakers could also be affected by any limit on the interest deductions because dealers may finance fewer vehicle purchases, Allen said.

The tax plan was subject to little debate before being approved in the Finance Committee and is expected to be voted on by the full Senate sometime after the Thanksgiving break.

Dealerships are being urged to talk with their accountant to learn how the limit on interest expense would impact their business.

Truck, motorcycle, recreational vehicle, boat and farm equipment retailers are lobbying Congress to preserve interest deductibility for floor plan financing. Welch’s letter warned that limiting the interest deduction would exacerbate the downturn in the highly cyclical auto and heavy-duty truck industries.

ATTENTION COMMENTERS: Over the last few months, Automotive News has monitored a significant increase in the number of personal attacks and abusive comments on our site. We encourage our readers to voice their opinions and argue their points. We expect disagreement. We do not expect our readers to turn on each other. We will be aggressively deleting all comments that personally attack another poster, or an article author, even if the comment is otherwise a well-argued observation. If we see repeated behavior, we will ban the commenter. Please help us maintain a civil level of discourse.

Leave a Reply