On Thursday, the Senate passed the “Supply Chain Disruptions Relief Act” (S. 4105) legislation that would provide LIFO relief to dealers, but time expired prior to U.S. House consideration before the body adjourned to avoid incoming winter storms. Strong support for LIFO relief legislation, and unanimous Senate passage of the bill, strongly positions a new bill for inclusion in a tax package being developed by House Republicans who will control the chamber in two weeks.
While there were no substantive objections to the “Supply Chain Disruptions Relief Act,” House bill consideration was delayed by procedural complications and last-minute Treasury Department revisions to the legislation, which were not acceptable, and were later dropped.
Tax legislation is almost always bundled in a large legislative package, in lieu of bills on standalone provisions, and there was no legislative package that carried business tax provisions this year. Senate Majority Leader Chuck Schumer’s (D-N.Y.) effort to pass Sens. Sherrod Brown (D-Ohio) and Tim Scott’s (R-S.C.) bill as a free-standing bill is highly unusual.
LIFO relief legislation will be reintroduced in the new Congress and will have the same effect for dealers who have filed final returns for 2021. A dealer will still be able to claim relief if the bill passes. As a practical matter, the bill will enable dealers to recompute their tax liability retroactively without the expense of filing an amended return. A dealer will be permitted to determine tax liability for 2021 as if there were no LIFO recapture. Any LIFO recapture that has been paid to date will be deemed prepaid. Federal income taxes that can be used to offset future tax liability.
Senate passage of this bill demonstrates Congressional intent to provide legislative relief for local dealerships that have increased tax liability due to the inability to replenish inventory because of supply chain disruptions.
For more information, see NADA’s LIFO issue brief.