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Lawmakers seek tax break for car dealers facing supply troubles

Laura Weiss, CQ-Roll Call on

Published in Automotive News

A bipartisan contingent of lawmakers is pressing to give car dealerships relief from bigger tax bills they could face due to global microchip shortages that have pinched the supply of new vehicles.

Rep. Dan Kildee, D-Michigan, is leading the charge to deliver relief to dealerships and working to attach his bill with Rep. Jodey C. Arrington, R-Texas, to a bigger package that can get it to President Joe Biden’s desk in the coming months.

Kildee, a member of the tax-writing Ways and Means Committee and House Democrats’ whip team, said in an interview that he hopes it will be added to a package aimed at boosting U.S. semiconductor manufacturing and competitiveness with China. That measure is in conference negotiations to resolve differences between House- and Senate-passed bills.

Kildee, a member of that conference committee, said his proposal is both a tax and trade issue and should be germane to the broader competitiveness package. “It’s a bill and an issue that fits very neatly in that subject,” he said.

If that doesn’t work, Kildee plans to look for the next possible legislative vehicle, including a potential year-end tax package that could address expiring tax policy and a range of other outstanding tax issues.

The issue facing auto dealerships stems from an unexpected plunge in inventory because of the COVID-19 pandemic, auto groups say.

 

The global health crisis caused factories to close and reduced the supply of computer chips critical for producing cars and trucks, among numerous other consumer goods. Without the chips needed to power safety features, dashboard displays and more, auto plants have shut down or slowed production and left car dealerships with emptier lots.

‘LIFO’ concerns

Dealerships tend to use an accounting method called “last in, first out” for their inventories, which allows them to consider the latest cars purchased for their lots as the first sold.

“LIFO” accounting is a time-honored method employed by numerous industries reliant on large inventories, from oil refiners to grocers to wine and beer distributors. It’s meant to smooth out the effects of inflation by providing bigger deductions for the cost of goods sold when higher prices kick in. Conversely, price drops will saddle companies with lesser deductions.

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