Legislation Alert: Immediate Dealer Action Requested

Last week, we asked our dealers to call members of Congress and let them know that a business interest limitation was unworkable for our industry. Your calls worked! The House bill (H.R.1, as amended) now contains an exemption for businesses which utilize floor plan financing. H.R. 1, as amended, gives dealers the option to choose either a full deduction of all business interest  or a cap on business interest in exchange for receiving full and immediate expensing. The language contained in H.R.1, as amended, will give dealers flexibility to ensure they can continue to invest in their communities and employees.

 Our work isn’t done! Now, the Senate Finance Committee (Committee) has released its own tax reform proposal. The Committee’s proposal contains a limitation on business interest. If enacted in its current form, the Committee’s business interest limitation will have a profoundly negative impact on equipment dealers. Please allow the following examples to demonstrate the impact:

Hypothetical Number 1:

  • Assume S-Corporation
  • Dealer made $185,000 in taxable income
  • Dealer paid $480,000 in interest
    • Add these numbers ($665,000)
    • Deduct $30% ($199,500)
    • Dealers taxable income increased: $280,500
    • Dealer now has $465,500 in preliminary taxable income
    • Senate bill allows a reduction in taxable income of 17.4% (under certain circumstances)
      • This results in a taxable income of $384,503
      • The pass-through rate is not lowered 25%
    • Dealer has $465,500 in taxable income under the new plan vs. $185,000 under the current plan
    • Dealer must pay $134,576 in taxes (Senate proposal) instead of $73,260 (current tax plan)

Hypothetical Number 2:

  • Assume C Corporation
  • Dealer made $185,000 in taxable income
  • Dealer paid $480,000 in interest
    • Add these numbers ($665,000)
    • Deduct $30% ($199,500)
    • Dealers taxable income increased: $280,500
    • Dealer now has $465,500 in preliminary taxable income
    • Rate reduction is not effective until 2019
    • Dealer now has $465,500 (taxable income under new plan) vs. $185,000 (under current tax plan)

The Committee is expected to vote on the proposal no later than tomorrow! We need you to call the Senate offices listed below TODAY and ask them to adopt an amendment consistent with H.R.1, as amended, which provides an exemption for businesses which utilize floor plan financing.

Call List:

Senator Orrin Hatch: 202-224-5251

Senator Chuck Grassley: 202-224-3744

Senator Mike Crap:202-224-6142

Senator Pat Roberts: 202-224-4774

Senator Mike Enzi: 202-224-3424

Senator John Cornyn: 202-224-2934

Senator John Thune: 202-224- 2321

Senator Richard Burr: 202-224-3154

Senator Jonny Isakson: 202-224-3643

Senator Rob Portman: 202-224-3353

Senator Patrick Toomey: 202-224-4254

Senator Dean Heller: 202-224-6244

Senator Time Scott: 202-224-6121

Senator Bill Cassidy: 202-224-5824