By Alysha Webb, Editor and Publisher
It’s impossible not to know that the tax landscape has changed. Fortunately, the new tax law looks to be good news for the buy sell market and for the dealership business.
It should mean more money flowing into the buy sell market, says Faris Syed, CEO and managing partner of Strategic Automotive Resources, a buy sell advisory in Florida.
“There are a lot of tax benefits [in the new tax law] for the bigger dealership groups and they will go into buy sell mode,” he tells Automotive Buy Sell Report.
S.A.R. also sees more private equity funds coming into the market as the stock market rises, and overseas money flows back into the U.S. because of the new tax law.
“[Private equity investors] are looking to shop more,” says Syed.
Provisions aside, the fact that the tax law is finally settled should boost the number of those looking to invest in a dealership, says Syed.
“People are coming back into the market now that the uncertainty is gone,” he says.
Expect a big buy sell announcement out of Florida soon that was consummated because one of the parties finally knew what to expect regarding taxes, says Syed.
There is a potential downside for buy sell activity in the new tax law, says Joseph A. Magyar, CPA and partner at Crowe Horwath LLP.
“Many dealers will see reductions in their taxes which may be favorable to buy-sell activity along with improving their returns on future acquisitions,” he tells Automotive Buy Sell Report. “However, the general limitation that may apply to interest deductibility may be less favorable for transactions.”
Dealerships should find a lot to like in the new tax law.
The most important “like” wasn’t a change at all. Instead, it was a retention of the 100 percent deductibility for a dealership’s floor planning costs. The original version of the new tax law, which is called as the Tax Cuts and Jobs Act, would have cut that deduction to 30 percent.
The National Automobile Dealers Association’s lobbying efforts helped preserve the 100 percent deduction.
“Preserving full deductibility of floor plan interest will help preserve auto sales, dealership jobs and tax revenue for our state and local governments,” said NADA 2017 chairman Mark Scarpelli in a piece on the NADA website.
The law contains additional good news for dealers.
“With a reduction in both corporate and pass-through rates, most dealers should see a decrease in their federal income tax liabilities,” Buddy Dearman, CPA and managing partner at DHG Dealerships, tells Automotive Buy Sell Report.
The new law favors capital investments, says Ken Rosenfield, managing partner at dealership accounting firm Rosenfield & Co.
“For dealers investing in capital expenditures and technology, the new tax law creates great advantages in expensing and depreciating capital improvements,” he tells Automotive Buy Sell Report.
Other dealer-friendly provisions in the new bill, says Rosenfield, include and “a big break with the uplifted estate tax exemption, which creates significant estate tax planning opportunities.”
“Dealers should breathe a sigh of relief with the new tax laws,” he says.