Thanks to hard work by NADA and many dealers, the final tax bill before Congress that passed the Senate late Friday night included full deductibility for floorplan interest, the same as the House bill. The House and Senate versions have very similar language, so NADA is optimistic that full deductibility will stay in the final bill that comes out of conference committee.
The version of the Tax Cuts and Jobs Act that passed the Senate Finance Committee two weeks earlier reduced the current 100 percent deduction of business interest, including floorplan interest, to 30 percent of adjusted taxable income. Limiting this type of business interest would disproportionately hurt small business auto, boat, RV and motorcycle retailers, particularly during an economic downturn. Sen. Rand Paul (R-KY) introduced an amendment, which passed, that preserves full floorplan interest deductibility.
NADA pointed out to senators that interest expense has historically been one of the top three expenses at a typical dealership. The 30 percent limit unfairly puts small business dealers with high-cost inventory at risk of paying higher taxes even when the dealership does not show a profit. The Finance Committee bill treated dealers, generally closely held small businesses, the same as large corporations that choose debt over equity for tax purposes. Franchised automobile dealers do not have access to equity markets, so floorplan financing is a necessity, not a choice.
The floorplan measure was one part of a huge, wide-ranging tax bill that ran over 700 pages and included many additions and revisions added by hand at the last minute. A few other provisions in the bill that are important to dealers are these:
- Estate tax: The Senate bill does not abolish the estate tax, as the House bill does. But it doubles the exemption to $11 million.
- Pass–throughs: The Senate bill added bigger tax cuts for pass-through businesses and C corporations, which includes many dealerships. Owners of those businesses would be able to deduct 23 percent of their income before paying taxes.
- Expensing: This provision, which now allows businesses to deduct the full cost of equipment and facilities, would be phased out in five years instead of immediately.
- Health care: This bill is not just about taxes. The Senate version, but not the House, bill repeals the individual mandate requiring all Americans to buy health insurance. Many House members would like to keep chipping away at Obamacare, but industry experts have said that premiums could soar if the individual mandate were abolished.