Issue link: http://read.dmtmag.com/i/117833
Research (���U.S. Member Tax Survey Results Help AED Establish Tax Reform Priorities��� continued from page 20) support account for almost one-third of revenues. (See chart below.) What it means: Dealers help make their customers more efficient by providing a wide range of equipment acquisition options. Congress and the Internal Revenue Service (IRS) need to understand that our members do more than just sell equipment. Tax laws and IRS rules must provide sufficient flexibility to allow our members to serve a wide array of equipment markets and types of customers. LIFO What you told us: Thirty percent of survey respondents reported using the last in, first out (LIFO) inventory accounting method and 28 percent use first in, first out (FIFO). The average reported LIFO reserve was $8.16 million. Survey respondents reported combined LIFO reserves of $220 million. AED projects that its members have approximately $588 million in combined LIFO reserves. What it means: Were Congress to get rid of LIFO, as President Obama has consistently requested in his proposed (but never passed) budgets, AED estimates that our members would be subject to roughly $200 million in retroactive tax liability. That would be a big tax hit at a time when the industry is still recovering from the recent construction depression. AED is a founding member of the LIFO Coalition and serves on its steering committee. We���ll continue to make the prevention of LIFO repeal one of our top tax priorities. Structure of AED Member Companies What you told us: Two-thirds of survey respondents classified themselves as either S-corporations, Limited Liability Companies (LLCs), or Limited Liability Partnerships (LLPs); 34 percent of AED dealer member companies are C-corporations. The respondents classifying themselves as either C- or S-corporations had 5.5 shareholders on average; partnerships had an average of 2.4 owners. What it means: The equipment industry is dominated by closely held, pass-through entities. There���s a lot of talk about corporate tax reform in Washington, D.C. That is good news because the tax code is a mess. But tax reform cannot focus solely on C-corporations and publicly traded companies; it must also benefit the pass-through entities and smaller businesses that are the lifeblood of the economy. Rental and Like-Kind Exchange What you told us: Respondents reported $1.29 billion in total rental revenues in 2011, an average of $12.03 million per company. From this AED projects its members��� 2011 rental revenues exceeded $3.3 billion. The total estimated acquisition cost of respondents��� depreciable rental fleets (including rent-to-sell units being depreciated) as of Dec. 31, 2011, was collectively $3.13 billion, an average of $31.26 million per company. The total estimated combined acquisition value of member rental fleets was $9.02 billion. Approximately one-fifth of respondents reported having a like-kind exchange (LKE) program in place for their rental fleets. Respondents reported combined LKE deferrals of $295 million, an average of $12.3 million per company. AED projects its members have more than $720 million in combined LKE deferrals. What it means: These findings reinforce that our members are serving their customers well by providing an array of equipment acquisition options. Lawmakers and regulators need to understand the broader benefits members deliver and not erect artificial barriers that undermine efficiencies for our members and their customers. LKE is a case in point. It is a long-established tax tool that allows capital gains and recaptured depreciation taxes to be deferred when replaced with like-kind real and personal property. Over the last decade, LKE has become popular in the equipment industry. Unfortunately, LKE is under attack on multiple fronts. The Center on Budget and Policy Priorities, a liberal think tank, released a report entitled ���Tax Expenditure Reform: Essential Ingredient of Needed Deficit Reduction��� that urges Congress to restructure a number of tax expenditures as a means of raising new revenue to offset mounting federal budget deficits. It states that, ���Policymakers also should close various tax breaks that allow wealthy people to pay much lower or no taxes on certain forms of income.��� LKE is on the list of tax breaks targeted for elimination. At the same time, the IRS continues to question the way some dealers depreciate equipment held out by the dealership for both rental and sale. The Internal Revenue Service recently issued a call for comments on whether ���dual use��� equipment should be eligible for depreciation and for LKE. The message from AED will be loud and clear: yes and yes. 24 | www.cedmag.com | Construction Equipment Distribution | April 2013 20_Tax_Feature_KP.indd 24 3/25/13 12:04 PM