First off, let’s start with the House of Representatives. The House Ways and Means Committee has announced the formation of 11 separate Ways and Means Committee Tax Reform Working Groups. The groups will be led by one Republican member serving as chair and one Democratic member serving as vice chair. Each of the 11 groups will review current law in its designated issue area and then identify, research and compile feedback related to the topic of the working group. The working groups will be responsible for compiling feedback on its designated topic from: 1) stakeholders, 2) academics and think tanks, 3) practitioners, 4) general public and 5) colleagues in the House.
Once the work of those groups is completed, the Joint Committee on Taxation will prepare a report for the full committee. The final Joint Committee on Tax Report is expected to be delivered to the Ways and Means Committee on Monday, May 6, 2013.
So why is NAE DA pointing this out to you, you are probably asking? We wanted to make you aware of the areas NAE DA will be commenting on to the committees. Dealers need to be aware of these issues so you can reinforce them as you see and speak with your representatives over the coming months. If tax reform is going to happen, one of the ways it will happen will be through the House Ways and Means Committee; that is why it is important to know what our issues are.
We will be submitting comments on:
1. LIFO. We will explain why this accounting method is important to dealers and what it means to the industry.
2. Equipment Depreciation. We will outline why the IRS depreciation schedules should be authorized to change equipment depreciation to five years from the seven years that currently exists. Some of the same rationale for the next item will also be used as our arguments here.
3. Bonus Depreciation and Section 179 Expensing. We will state why customers buying equipment should be allowed to write off a piece of equipment over a shorter lifetime. Our statements will include that the depreciation change should increase your customers’ income, help in any debt repayments and allow for timely replacement of equipment with newer models. We intend to also mention that faster equipment replacements bring environmental benefits from newer engines, better fuel efficiencies and the latest technology in emission controls.
4. Buildings and Building Contents. We will ask the relevant committee to review the “class life” definitions of a dealership’s buildings and contents. The current depreciation schedules spread out the costs of such improvements over too long a recovery period, which often delays a dealer from making such improvements. The need for buildings to accommodate newer and larger pieces of equipment and for adequate diagnostic hardware to service equipment, including tracking and guidance systems, is creating a demand for these capital expansions which justify why we believe the schedules should be reviewed and changed.
5. IRS Code Section 263A. We will make the case that the current threshold of $10 million in annual sales is too low, as this outdated IRS code section requires dealerships to capitalize certain costs—such as labor, handling, purchasing and storage of inventory products. This “capitalization” is a highly complex calculation for most dealers. Our second reason for asking for a change is the fact that the $10 million figure has not kept up with business growth or the consolidations of businesses.
We encourage you to submit your own comments and recommendations to the various study groups. For more information on how to do this, see the article, “Tax Reform Targeted,” on page 11 of this issue.
The second item in Washington we will be watching and commenting on as appropriate is the budget discussions. There will be a lot of trade-offs going forward by both parties, and the issue most likely to get caught up in those trade-offs is the next farm bill. Please refer to the Advocacy Section of this magazine issue to get a full understanding of the possible farm bill issue.
MIKE WILLIAMS is vice president of government relations for NAEDA.
He can be contacted at firstname.lastname@example.org.