When it comes to tax policy, the Auto Care Association has taken the following positions:
Save LIFO | SaveLIFO.org
Numerous budget proposals have called for repeal of the Last-In-First-Out (LIFO) inventory accounting, which would have a severe impact on many segments within the auto care industry. LIFO has been in use for over 70 years, and is used by more than one third of American companies across manufacturing, wholesale distribution, and retail. The negative impact of repeal would result from LIFO’s unprecedented retroactivity, since the majority of the revenue would be derived from a one-time “recapture tax,” the taxation of the LIFO reserves that companies have built during all the years they have used LIFO. Many lawmakers struggle with understanding the issue because, in fact, a company’s LIFO reserve is not a liquid asset sitting in an account—it is an accounting entry. Today, taxes on existing LIFO reserves are due when the inventory levels are reduced, or when a company closes or is acquired. Of major concern, most LIFO repeal proposals contain no transition rules that would mitigate the harm of repeal. The fact is that there is no additional cash flow coming into the company with which to pay this retroactive tax bill. Auto Care continues to be an active participant in the Save LIFO coalition, which fights to preserve LIFO for American businesses.
Reject the Border Adjustment Tax | Infographic
In order to offset the revenue lost from lowering the corporate tax rate, congressional leaders have proposed the Border Adjustment Tax (BAT), a revenue-generating tax reform provision that would prevent U.S. companies from deducting costs of imported goods when calculating taxable income. The BAT, as it stands today, would apply to all imported raw materials, components and finished goods from every country. Even with a decrease in the corporate tax rate from 35 percent to 20 percent, the inability to deduct these costs would result in a significant increase in taxes due to a higher taxable income. Prices would increase throughout the supply chain, with added costs ultimately being passed down to the end consumer. View Auto Care’s infographic on the BAT.
Support Marketplace Fairness
Auto Care supports leveling the playing field for brick-and-mortar businesses through tax legislation such as the Marketplace Fairness Act or Remote Transactions Parity Act. In the early days of e-commerce, Congress imposed a sales tax moratorium for purchases made online. However, the continuation of this moratorium has begun to hinder brick-and-mortar businesses by giving online retailers a significant price advantage. Auto Care urges Congress to pass legislation that achieves the following goals:
- Allows states the authority to collect sales tax from remote sales;
- Streamlines state tax codes in order to eliminate excessive audit burdens;
- Provides free software to online retailers to integrate with existing point-of-sales systems in order to ease collection of the tax;
- Minimizes regulatory burdens on small online retailers; and
- Bases rates on the destination of the purchase in the transaction.
Repeal the Estate Tax
Auto Care has historically supported full repeal of the Estate Tax. On Jan. 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, establishing an exemption of $5 million (adjusted for inflation) per person for U.S. citizens and residents, with a maximum tax rate of 40 percent for the year 2013 and beyond. At the time, the legislation was viewed as a permanent fix to the Estate Tax. However, subsequent budgets called for increases to the tax. While the Estate Tax would likely be addressed in any comprehensive tax reform legislation, Auto Care continues to work with several coalitions on full repeal.
Lower Effective Tax Rates for Small Businesses
Many Auto Care Association members, particularly the retail and service segments, are largely taxed at an effective tax rate of around 30 percent, while most large corporations (C-corps) are taxed at a percentage in the teens or lower. Proposed tax reform legislation does not address the disparities in effective tax rates paid, and it could even grow the disparity between large corporations and S-corps, pass-throughs, LLCs and partnerships. The Auto Care Association believes that the failure to address effective rates is a fundamental struggle for our small business members, and one that clearly demonstrates the inherent unfairness of the current tax system.
Questions? Contact Paul Fiore.