RVs Move America Deep Dive: Floor Plan Interest Financing Deductibility

RVs Move America Week is the time when RV industry colleagues come together to showcase the strength of the industry in meetings with federal policymakers across Capitol Hill, while collectively building a strategic road-map to help define future growth of the industry. During advocacy meetings, members of the RV industry will be advocating for policies that directly affect the RV industry each day. Below is a deep dive into one of this year’s issues: Floor Plan Interest Deductibility.

Last minute changes to the 2017 tax reform bill, known as the Tax Cuts and Jobs Act (TCJA), led to a definition change in one section, inadvertently limiting the deductibility of RV trailer dealers’ floor plan costs. Passed in December 2017, TCJA made changes to income tax rates for most individual tax brackets and reduced the income tax rate on corporations. However, the definition change in the interest section led to an unintended consequence that is currently disadvantaging one segment of the RV industry.

While US tax laws have allowed businesses to deduct the interest they pay on inventory, the TCJA reduced this 100 percent deduction of floor plan interest to 30 percent as a partial “pay-for” for other provisions in the bill. In the end, the final legislation preserved the one hundred percent deduction for floor plan financing for “motor vehicle” dealers. However, a change in how “motor vehicle” is defined has led to the current situation where dealers of towable RVs are capped at a 30 percent deduction of floor plan interest.

In both the House and Senate bills, the term “motor vehicle” was written to explicitly include all RVs:

House:
(C) MOTOR VEHICLE. - The term ‘motor vehicle’ means a motor vehicle that is any of the following:
‘‘(i) An automobile.
‘‘(ii) A truck.
‘‘(iii) A recreational vehicle.
‘‘(iv) A motorcycle.
‘‘(v) A boat.
‘‘(vi) Farm machinery or equipment.
'‘(vii) Construction machinery or equipment.’’

Senate:
(C) MOTOR VEHICLE. - The term ‘motor vehicle’ means a motor vehicle that is any of the following:
‘‘(i) An automobile.
‘‘(ii) A truck.
‘‘(iii) A recreational vehicle.
‘‘(iv) A motorcycle.
‘‘(v) Any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road.
‘‘(vi) A boat.
‘‘(vii) Farm machinery or equipment.’’.

However, the final Tax Cuts and Jobs Act combined several of the above terms - “automobile,” “truck,” “recreational vehicle,” “motorcycle” - into the term “self-propelled vehicle:”

Final:
‘‘(C) MOTOR VEHICLE. - The term ‘motor vehicle’ means a motor vehicle that is any of the following:
‘‘(i) Any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road.
‘‘(ii) A boat.
‘‘(iii) Farm machinery or equipment.

The Joint Explanatory Statement of Conference Agreement indicated that the conferees believed that all the above terms had been accounted for in the new definition, writing:

[T]he conference agreement modifies the definition of motor vehicle by deleting the specific references to an automobile, a truck, a recreational vehicle, and a motorcycle because those terms are encompassed in the phrase, “any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road.

Approximately 88 percent of RVs sold are non-motorized travel trailers. Under current law, therefore, the exemption now only applies to RV motorhomes—to the detriment of the RV travel trailer industry. Consequently, almost an entire class of recreation vehicles is excluded from the full tax deduction and is limited to a net interest deduction of 30 percent of earnings. This has proven particularly problematic for larger dealers who must now adopt different accounting rules for trailers and motorhomes. Additionally, other dealers, including boats, motorhomes, conversion vans, motorcycles and automobiles, can fully deduct the interest paid on their inventory floor plans, placing trailers at a disadvantage compared to other recreation products.

There is support in the House and Senate for legislation to refine language that limits the deductibility of the RV trailer dealer’s floor plan costs. In 2018, U.S. House Reps. Tom Emmer (R-MN-6) and Jackie Walorski (R-IN-2), Co-Chair of the House RV Caucus, introduced H.R. 6969 to ensure that towable RVs were included in the floor plan interest financing deductibility provisions. Senators Joe Donnelly (D-IN) and Joni Ernst (R-IA), then co-chairs of the Senate RV Caucus, introduced S. 3600, a Senate companion measure. Unfortunately, although the provisions of H.R. 6969 were included in the Ways and Means Committee’s tax package at the end of the 115th Congress, no final action was taken on this legislation.

The RV Industry Association’s government affairs team has been hard at work getting new legislation ready to be introduced this year. This legislation will be introduced within the next three weeks where Members of Congress will be asked to support as one of the association’s RVs Move America asks this year. While fixes to the tax bill are still in flux, this legislation will be ready to be pulled into any package.

For more information, contact Sam Rocci at srocci@rvia.org.