Congress

Texas congressman promotes an accounting method that benefits his car dealerships

Roger Williams, U.S representative from Texas' 25th Congressional District, speaks Jan. 25, 2013, at the Off Duty Armory, a gun store and shooting range in Burleson, Texas.
Roger Williams, U.S representative from Texas' 25th Congressional District, speaks Jan. 25, 2013, at the Off Duty Armory, a gun store and shooting range in Burleson, Texas. Star-Telegram

Along Interstate 20 west of Fort Worth, it’s hard to ignore the signs for Rep. Roger Williams’ myriad car dealerships.

The Texas Republican, whose district stretches from downtown Austin to the southern Fort Worth suburbs, is one of the wealthiest members of Congress, due in part to his car dealing enterprise.

Williams is worth approximately $27 million, making him the 16th richest member of Congress, and his car dealerships and their associated real estate could be valued as high as $50 million, according to his financial disclosure.

While most members of Congress leave the private sector after winning elected office, Williams continues to own his dealerships and frequently mentions his experience as a small businessman as an asset in Washington.

“It’s so important to me that we get real tax reform, I’ll beat the drum anywhere,” Williams said in a recent interview.

One of Williams’ cornerstones of a tax overhaul involves keeping an accounting practice that helps out car dealers like himself – along with many other businesses, like oil companies and pharmaceuticals – and is promoted by the National Automobile Dealers Association, one of his largest campaign contributors.

Williams wants to protect a federal tax provision called “last in, first out” accounting. It’s a tool that allows businesses to report their most recently acquired inventories as sold before older inventories. The practice allows businesses with reliably increasing inventory prices, like car dealerships, to save money on taxes by claiming the lower profits as a “LIFO reserve.”

Repealing LIFO would force companies using this method to report their LIFO reserves as income, resulting in a massive tax increase for both large and small businesses.

Language of a tax plan proposed by Rep. Roger Williams, R-Texas. Car dealerships such as his can benefit from LIFO accounting.

President Donald Trump is pushing Congress to overhaul the nation’s tax code in the coming months, and Williams wants to make sure that any revamp protects the accounting practice.

“The last in, first out accounting method is a more accurate way of measuring financial performance and calculating taxes,” Williams’ tax overhaul plan says. “Repealing LIFO would force companies using this method to report their LIFO reserves as income, resulting in a massive tax increase for both large and small businesses.”

Publicly traded companies are required to disclose their LIFO reserves. Ford Motor Co., for example, decreased its inventory value by $888 million last year by using LIFO. The smaller total cost of inventory means Ford Motor Co. pays fewer taxes.

Unsurprisingly, car dealers rank among Williams’ largest campaign contributors. Their members are big supporters of keeping LIFO.

“John Deere is a good example. They’re a heavy industrial company,” said University of Texas accounting professor Ross Jennings. “If their LIFO reserve is somewhere in $2-3 billion dollar range, the tax savings would approach a billion dollars.”

The tax savings that LIFO gives Williams’ car dealerships is not known, because they are not publicly traded.

“Rep. Williams’ goal since day one in Congress has been to incorporate the lessons he learned firsthand as a job creator into smart policy,” Williams spokesman Vince Zito said in a statement. “For far too long Washington’s lawmakers have been detached from reality, and their failed policies show this. LIFO accounting is a proven way for retailers and manufacturers, and particularly small businesses, to reinvest more of their profits in their employees, facilities and services.”

Williams, a longtime GOP fundraiser who first won election to Congress in 2012, is currently under a review by the Office of Congressional Ethics in a separate case for promoting an amendment to a bill that would benefit his car dealerships.

In 2015, legislation was introduced that would prohibit car rental agencies from renting out cars under recall. Williams introduced an amendment that narrows the prohibition on recalled vehicles to businesses “primarily” engaged in car rentals, therefore exempting the loaner vehicles that car dealerships offer to customers.

The amendment passed by voice vote, despite opposition from some Democrats, and the ethics complaint was filed a few months later by the Campaign Legal Center, a nonprofit focused on campaign finance issues. The complaint has not been resolved, and Williams did not cooperate in an investigation by the Office of Congressional Ethics.

Meredith McGehee, chief of policy at Issue One – a nonprofit that seeks to reduce the influence of money in politics – and author of the complaint against Williams during her time at the Campaign Legal Center, said his support of LIFO did not break congressional rules.

“It is the individual member’s decision . . . whether or not he or she recuses himself,” McGehee said.

McGehee said any potential LIFO legislation would likely benefit a broad class of business owners beyond car dealers like Williams, and therefore wouldn’t violate ethics rules. But Williams could recuse himself from a vote or at least state for the record that he would financially benefit from a LIFO bill.

“Very few members ever do that,” McGehee said.

Williams’ office said he was unavailable for an interview about his LIFO provision.

“No company – auto dealer or any other – gets permanent forgiveness of tax liability by using LIFO,” said Jade West, a Washington lobbyist who runs the LIFO coalition and is vice president for government affairs at the National Association of Wholesaler-Distributors.

“For example, oil companies have been selling off their LIFO reserves during the recent years of declining prices, and have been paying the owed recapture tax as that inventory is sold,” she said in a statement. “A lot of LIFO companies reduced new inventory purchases during the ‘great recession’ and instead liquidated their reserves – and paid the owed recapture tax.”

She emphasized that many types of companies use LIFO; the coalition’s members include groups representing grocers, manufacturers, distributors and fabricators, among others.

Unsurprisingly, car dealers rank among Williams’ largest campaign contributors. The National Automobile Dealers Association gave Williams $10,000 during the 2016 cycle, and the National Independent Automobile Dealers gave him $16,890 in 2016, more than any other member of Congress. Their members are big supporters of keeping LIFO.

“A majority of the nation’s 16,500 franchised new-car dealerships use the LIFO method of accounting, and LIFO repeal would strip working capital from these dealerships” and threaten jobs, Jared Allen, the National Automobile Dealers Association’s director of media relations, said in a statement. “In fact, in a recent survey of franchised dealers, 39 percent stated they would have to lay off employees or eliminate positions if LIFO were repealed.”

The tax plan being trumpeted by House Speaker Paul Ryan, R-Wis., and Ways and Means Chairman Kevin Brady, R-Texas, aims to preserve LIFO but does not explain how inventory or LIFO reserves would be treated for tax purposes.

In 2014, President Barack Obama and Ways and Means then-Chairman Rep. Dave Camp, R-Mich., each proposed eliminating LIFO to raise revenue as part of a tax overhaul effort. They were met with bipartisan opposition and criticism from business groups, and the effort largely stalled.

As of 2017, the United States is the only country that allows LIFO as an accounting method.

“They don’t like the inaccuracy,” professor Jennings said of why other countries don’t allow LIFO.

UPDATE: This story has been updated to include perspective from the LIFO Coalition.

Alex Daugherty: 202-383-6049, @alextdaugherty

All about ‘last in, first out’

What is LIFO?

“Last in, first out” is an accounting practice that allows businesses to claim the latest inventory purchased as the first inventory sold to consumers.

Why do companies use LIFO?

Companies that have inventory that reliably increases in price, such as cars, like to record their most recent inventory as sold first because it decreases their profit margin on the balance sheet, leading to lower taxes. For example, if a dealer paid $20,000 for a new vehicle last year and $25,000 for a new vehicle this year, reporting that the $25,000 vehicle sold first results in inventory worth $5,000 less for tax purposes than it would have been. The difference between a company’s profit margin under a LIFO system and a traditional accounting system, where the oldest inventory is recorded as being sold first, is called a LIFO reserve.

Why do companies want to keep LIFO?

In addition to the tax savings, if LIFO is no longer allowed as an accounting method businesses would owe taxes on their accumulated LIFO reserves. For large, publicly traded companies, this could amount to billions of dollars.

Why get rid of LIFO?

Eliminating it would raise billions of dollars in taxes for the federal government and would put the U.S. in line with the rest of the world. The U.S. is the only country that uses LIFO as an accounting method.

— Alex Daugherty

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