WASHINGTON – Recreational vehicle retailers from across the country were sipping morning coffee at a convention in Las Vegas earlier this month when word whipped through the hotel’s “dealers’ lounge” that the U.S. Congress was considering tax law changes threatening their businesses.
Republicans in the House of Representatives wanted to jettison a part of the tax code that lets dealers of RVs, cars, boats, even farm and construction machinery, write off all the interest expense of keeping inventories of vehicles on their sales lots.
The RV dealers jumped on the phones to their representatives in Washington, adding to a wave of calls made by members of the powerful National Automobile Dealers Association (NADA) as well lobbyists for boat dealers and farm machinery dealers.
“It’s an eyedropper approach,” said Phil Ingrassia, head of the RV dealers’ trade group who marshaled their effort from the Bally’s Hotel. “Just get heard.”
By the end of the day, the crisis had passed, at least temporarily. The House had backed away from repealing the tax deduction for what dealers call floor-plan interest expense, or the financing costs they incur for vehicles on their lots, but they must still convince the Senate.
NADA, which represents more than 16,000 dealers nationwide, plans to send a letter on Monday to Senate Republican leaders, saying the group will not support a tax bill lacking the House language.
“The Senate business interest provision unfairly puts small businesses with high cost inventory at serious risk of paying higher taxes even when a business does not show a profit. NADA respectfully urges the Senate to include the language of H.R. 1, so that floor plan interest remains fully deductibility,” said the letter from NADA President Peter Welch reviewed by Reuters.
Senate Republicans want to put broad limits on business interest deductibility, including dealer floor plan interest. Auto lobbyists did not convince the Senate Finance Committee to change the proposal before the panel approved it late Thursday, sending it on to the full Senate for consideration.
As Congress and President Donald Trump push ahead on what could be the largest tax overhaul since the 1980s, the crush of lobbyists descending on Washington D.C. is a reminder that no legislation sweeps across American interests quite like a tax bill.
Floor plan interest deductibility has been part of the tax code since 1918. The deduction costs the U.S. Treasury about $300 million a decade, which is not much relative to the $4 trillion annual federal budget, but Republicans are looking at every source of new federal revenues they can find to offset the costs of deep cuts they want to make in corporate tax rates.
Republicans also have raised questions about why interest costs paid by businesses in many forms is tax deductible at all, given it may encourage over-leveraging by business, and given corporations are not permitted a tax deduction for the costs of raising equity capital.
For lawmakers, such questions have to be weighed against aggressive lobbying exerted by groups defending their interests, such as the NADA, whose members employ over 1.1 million people selling cars from all major automakers, including General Motors Co, Volkswagen and Toyota.
Dealers argue that they have no choice but to pay significant interest costs to finance new vehicle inventory and would face higher costs if the provision is not changed.
Beyond the floor plan issue, the Electric Drive Transportation Association wants Congress to preserve a $7,500 electric vehicle tax credit.
A group of retired military leaders, including a former commandant of the U.S. Marine Corps and a former Navy secretary, sent a letter to Congress last week reviewed by Reuters urging lawmakers to keep the credit, but reform it. They suggest ending the credit in 2023, but lifting the existing 200,000 vehicle cap, a move that could help automakers like Tesla Inc. and General Motors.
Foreign automakers such as Toyota Motor Corp. and Honda Motor Co. are focused on a proposal that could increase taxes for foreign automakers that pay royalties, interest or other payments to their parent companies abroad.
The National Association of Home Builders wants a homeowners tax credit in the bill, especially if homeowners are only allowed to deduct the first $500,000 of their mortgage interest, as the House proposes. The association last week brought 100 builders from nationwide to fan out across Capitol Hill.