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Tax reform: Floor plan interest deduction sharply reduced for trailers

Jan. 26, 2018
For the first time in more than 30 years, Congress has passed a significant tax reform package.

For the first time in more than 30 years, Congress has passed a significant tax reform package. And while a range of businesses leaders—including those in manufacturing and trucking—have praised the “Tax Cuts and Jobs Act” (H.R. 1), along with immediate promises of employee bonuses, capital investment, and job creation, some of the changes have come as unwelcomed surprises.

Indeed, trailer dealers may want to pay close attention to limitations on the ability to deduct interest on floor plan loans, according to the National Trailer Dealers Association.

The 100% deduction of floor plan interest has been reduced to 30% of adjusted taxable income, and treats dealerships, generally as closely-held small businesses, the same as large corporations, according to NTDA’s early analysis.

“It is important to note that while floor plan interest appears to be fully deductible, it appears to be limited to auto and truck dealers only based on the definition of a ‘motor vehicle’ in the new legislation,” the association writes in an advocacy note to members.

Indeed, NADA—the trade association for automobile dealers—had to lobby hard to protect the full floor plan deduction in its segment. The Senate finance committee’s version of the bill had “inadvertently” put small business dealers with high-cost inventory at risk of paying higher taxes, NADA said, convincing Sen. Rand Paul (R-KY) to introduce an amendment maintaining the 100% rate.

“NADA is pleased the Senate bill was corrected,” the association said. “Preserving the full deductibility of floor plan interest will help preserve auto sales, jobs and tax revenue for state and local governments.”

Trailer dealers, however, may have been left out of the amendment’s fine print.

According to an opinion provided NTDA by Tim Reynolds, CPA, principal, with CliftonLarsonAllen LLP, “Trailers are not considered ‘self-propelled’ and they may not fall under the farm machinery and equipment category either.”

Therefore, trailers would not meet the criteria for 100% deduction of interest on floor plan loans under the new tax reform law.

NTDA recommends those hoping to preserve the floor plan deduction to contact their legislators and simply ask them to revise the wording to include the word “trailers” as self-propelled because they require a tractor to pull them. Changing the wording would in effect allow floor plan interest to be considered 100 percent deductible once redefined, NTDA says.

Still, Jay Timmons, president and CEO of the National Association of Manufacturers, called the bill’s passage “a historic moment for the United States.”

“After all, we had the highest corporate tax rate in the industrialized world. That was unacceptable, and there was nothing competitive about that,” Timmons said. “By providing relief to small businesses especially, Congress has strengthened the heart of the modern manufacturing economy.”

And while Timmons noted the final tax legislation “certainly isn’t perfect,” the law is “only part of a larger agenda” for manufacturing competitiveness that also includes regulatory reform, infrastructure investment, trade expansion and workforce development. Timmons also pointed to the key tax reform components manufacturers have been calling for “over many years, even decades”: a substantially lower corporate tax rate, tax relief for small manufacturers, a territorial tax system, benefits for buying new equipment and tools, and incentives for research and development.

As this edition of Trailer/Body Builders was going to press, the roster of blue chip companies offering bonuses as a way of sharing their savings included Apple (which also promised to invest an additional $350 billion in the U.S. economy), American Airlines, AT&T, and Bank of America.

Likewise, Rush Enterprises Inc, which operates the largest network of commercial vehicle dealerships in North America, announced that it will provide a one-time $1,000 gift to its approximately 6,600 employees in the United States.

“We believe tax reform to be beneficial for Rush Enterprises, our communities and overall economic growth,” said W.M. “Rusty” Rush, Chairman, CEO and president of Rush Enterprises, Inc.

Other trucking industry officials were quick to praise final approval of tax reform legislation.

“The trucking industry shares the exuberance of these companies and sees brighter economic days ahead,” said Chris Spear, president and CEO of American Trucking Associations.

Spear also noted a year-end surge in truck and trailer orders. “The increased flexibility to invest has pushed trucking companies to pull the trigger on buying newer, safer, cleaner, more efficient vehicles — a win for the companies that make these trucks and trailers and for the environment in addition to our industry,” he said.

About the Author

Kevin Jones | Editor