How dealers will benefit from tax-cut compromise

It looks like dealers will come out winners if the proposed compromise tax-cut package passes Congress. The deal would extend the Bush-era tax cuts even for people in the highest income brackets -- where most dealers end up.

The certainty of just knowing what tax rates will be for the next couple of years helps a lot, says Dan Thompson, a dealer accountant with Boyer & Ritter in Pennsylvania. Dealers will have more money left after paying taxes than they would have had if the rates had gone up, and he says many will plow that savings back in their stores.

“A lot of dealers have deferred capital improvements due to the economy and need to reinvest, so this should help them to do that,” Thompson says.

The tax deal also means a lower estate tax in 2011 than otherwise would have been seen after a one-year absence. If passed, the maximum rate will be 35 percent with a $5 million exemption. That’s much lower than the rate scheduled to take effect if nothing happens -- up to 55 percent with a $1 million exemption.

The National Automobile Dealers Association and other business groups lobbied for the lower estate tax. The average net worth of a dealership was $2.2 million in 2009, according to NADA. That suggests that the typical dealer would not be subject to any estate taxes should the tax package be approved, my colleague Neil Roland reported yesterday.

Most dealers oppose estate taxes altogether. But the proposed deal is “about as good as you could hope for,” Thompson says.