The National Association of Wholesaler-Distributors (NAW) and its LIFO Coalition, the American Supply Association (ASA) and the Heating, Airconditioning & Refrigeration Distributors International (HARDI) are asserting their support of the continuation of LIFO, in response to U.S. Senate Finance Committee hearings to discuss a potential repeal of the LIFO (last in, first out) accounting method.
Both ASA and HARDI surveyed their members in May to determine how many use that method of accounting, which helps businesses in many industries determine both book income and tax liability.
ASA's survey found that 82% of respondents use LIFO. HARDI's survey revealed that 50% of the total membership use LIFO. Among HARDI's distributor members, 60% use LIFO, while 40% of its manufacturer members use it. The survey found that among HARDI's largest distributor members - those with more than $100 million in annual sales - 90% use LIFO.
“ASA has been very aggressive on the LIFO issue and is an active member of the LIFO Coalition,” reported Patrick O'Connor of Kent & O'Connor, ASA's advocate in Washington. “ASA has also requested members in those states with Senators on the Senate Finance Committee to contact these key Senators,” he added.
“While ASA has not issued a formal position statement, we continue to be aggressive in our efforts to support the continuation of the LIFO provision, including maintaining membership in the LIFO Coalition,” said Inge Calderon, executive vice president at ASA. “Our advocates in Washington (Kent & O'Connor) are actively involved in the Coalition, representing our wholesaler and manufacturer members, whose concerns echo those of HARDI's.”
On its Web site (www.asa.net), ASA declares that thousands of businesses, large and small, use LIFO accounting, and a repeal would raise business taxes by billions of dollars.
Meanwhile, at its recent midyear business conference, HARDI's board unanimously approved a position paper stating its arguments against the repeal of LIFO. In the paper, HARDI pointed out that the LIFO accounting method of valuing inventory has existed for three quarters of a century as a means of helping to protect businesses from inflation and that its repeal would be disastrous to supply chains in every industry. The HVACR industry, which is rife with large, expensive and raw-material-reliant products and equipment, would be especially hard hit by such a repeal, HARDI said.
LIFO, as opposed to FIFO (“First-In, First-Out”), assumes that the last item purchased and put on inventory shelves will be the first item shipped out when sold, HARDI said in the paper. LIFO is especially useful during periods of consistent price increases - due largely to rising energy and commodity costs, as the last several years have been, or especially high inflation such as in the early 70s - because it does not count profits due only to inflation as part of businesses' taxable income. Rather, businesses hold those deferred taxes in “LIFO Reserves” until realized during periods of price decreases and deflation.
HARDI pointed out that LIFO Reserves often exceed six and seven figures for companies that have used LIFO for several decades. A repeal of LIFO would make those reserves taxable.
Testimony regarding LIFO by Associate Professor George A. Plesko of the University of Connecticut School of Business at a June 13 Senate Finance Committee hearing referenced a 1984 Treasury report that 95% of privately held businesses did not use LIFO. This conflicted with HARDI's survey findings, HARDI reported. Plesko also overstated the ability of LIFO users to manipulate their inventories for tax purposes and overlooked legislation and controls instituted to prevent such abuses, according to HARDI.
HARDI announced that it is mobilizing its membership for an aggressive grassroots campaign, starting first with multiple contacts to Finance Committee Chairman Sen. Chuck Grassley (IA). HARDI is also working with The Air-Conditioning and Refrigeration Institute (ARI) to ensure that the industry's manufacturers who do not use LIFO for their own inventories and safety stocks understand the threat to their distributors who may rely on the LIFO method. For more information on HARDI's efforts, visit:www.HARDInet.org.
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