In early May, prompt, decisive action by the business community successfully killed a surprise proposal by the Senate Republican leadership to permanently repeal the LIFO inventory accounting method. The revenue which this proposal would have raised was intended to fund a rebate of $100 to taxpayers to offset high gasoline prices.

The proposal for industry-wide LIFO repeal came out of nowhere. Business representatives first learned of it in on-line news accounts.

Many thousands of businesses – large and small – use LIFO accounting. Repeal of LIFO would raise business taxes by billions of dollars. Not surprisingly, the uproar that the surprise proposal generated was swift and vocal.

A coalition to defend LIFO was quickly formed by several associations, including the National Association of Wholesaler-Distributors (NAW). The members of the coalition were at the forefront of the opposition to the repeal, which was quickly and forcefully communicated to the Senate Leaders. AVDA recently joined the LIFO Coalition.

In the face of this resistance, on Monday, May 1 – just four days after announcing the proposal to repeal LIFO – Majority Leader Frist announced that immediate LIFO repeal was off the table.

But, the threat to businesses which use LIFO is not gone. In his May 1 announcement, Senator Frist stated:

“Accordingly, I've spoken with Chairman Grassley, and we have agreed to withdraw the LIFO repeal proposal from the rebate package. He will hold hearings on the LIFO proposal later this year, so the pluses and minuses of the provision can become well-known.”

Consistent with Senator Frist's statement, the Finance Committee continues to pursue the issue of LIFO repeal. Last month, the Committee held a hearing on corporate tax policy, and included a witness who testified on LIFO. The witness, a Connecticut college professor, was critical of LIFO, and highly uninformed and/or misinformed about its use. He testified that LIFO is not widely used by business, that there is only a nominal amount of inventory in LIFO reserves today, and that repeal would not affect many companies.

A well-respected LIFO expert prepared a response to this testimony for The LIFO Coalition, pointing out the multiple flaws and errors it contained; this rebuttal was submitted by the LIFO Coalition to the Finance Committee yesterday to be made a part of the official Committee hearing record. Copies of the testimony, the rebuttal, and the letter of transmittal to the Committee are attached.

The threat of repeal of the LIFO (last-in, first-out) inventory valuation method by Congress continues to loom with substantial tax consequences for manufacturers, retailers and wholesaler-distributors who are on LIFO. The Finance Committee has indicated that they intend to have further hearings on LIFO repeal, perhaps as soon as September.

The LIFO Coalition has grown to over 100 major associations in less than three months.

The LIFO Coalition, NAW and AVDA will remain very active on this issue, and are continuing to grow the Coalition. It is going to take a consistent and concerted effort on the part of business to persuade the members of the Finance Committee -- and possibly the full House and Senate at some point -- that LIFO repeal would be very damaging to many thousands of businesses across many industries.

To read a message from NAW President Bob Reynolds and learn more about NAW’s efforts, click here.

To see a list of LIFO Coalition members, click here.