Talking Points: Support Travel Trailer and Camper Tax Parity Bills H.R. 332

Background/Problem

Under current law, the tax exemption for interest paid on dealer inventory applies only to RV motorhomes, leaving RV travel trailers at a disadvantage. While motorhome interest remains fully deductible, travel trailers are now limited to a 30 percent deduction for dealers with $29 million or more in annual sales. This exclusion affects approximately 85% of RVs sold, which are non-motorized travel trailers, creating an unfair and complicated accounting situation for RV dealers.

Response

There is bipartisan support in the House and Senate for legislation to refine language that limits the deductibility of the RV trailer dealer’s floor plan costs. U.S. House Rep. Rudy Yakym (R-IN-2), and Dina Titus (D-NV-1) introduced H.R. 332 to ensure that towable RVs were included in the floor plan interest financing deductibility provisions. U.S. Senators Joni Ernst (R-IA) and Angus King (I-ME) introduced similar legislation in the Senate last year to remedy this error in the tax reform bill that inadvertently removed travel trailers from the definition of “motor vehicle” for the purposes of floor plan financing interest deductibility.

Rationale for Creating Equity in the Financing of Recreation Vehicle Inventory

·        RV Trailers are Motor Vehicles. RV trailers are considered motor vehicles under state and federal motor vehicle laws. They are designed to provide temporary living quarters for short-term camping and comply with applicable motor vehicle regulations. Therefore, it is essential to create equity in the financing of RV inventory by including RV trailers in the deductibility provisions.

·        Current Negative RV Dealer Impact. According the U.S. Census Bureau, an estimated 550 U.S. RV dealers with more than 25,000 employees are impacted by the tax disparity.  In 2023, it’s estimated that these dealers will pay an additional $100 million in taxes due to the inventory interest deduction limitation. This puts these dealers at a competitive disadvantage compared to other recreation equipment dealers, such as powersports and marine dealers, who can fully deduct interest on their inventory floor plans.

·        Current Negative Impact on Consumers. Retail RV prices have increased by 15% to 30% or more depending on the type of unit since 2020.  While not all the increase can be attributed to higher taxes paid by impacted dealers, a higher, disparate tax burden on these businesses contributes to the inflation and the increase in RV prices as indicated in the Fed’s RV Dealer Producer Price Index.

·        Initial Legislation Intended to Include RV Trailers. Both House and Senate tax legislation in 2017 intended to include RV trailers as motor vehicles in the floor plan interest exclusion. The consolidation of language aimed to simplify the provision but unintentionally excluded RV trailers due to confusion about the different types of RVs. Reinstating the original intent will rectify this unintended consequence.

Requested Action

Support the Travel Trailer and Camper Tax Parity Act (HR 3624) and (S.3345), legislation that ensures towable RVs are included in the floor plan interest financing deductibility provisions under IRS Code 163(j). By correcting this discrepancy, we can promote fairness, strengthen the competitiveness of RV trailer dealers, and support the growth of the RV industry.

Illustrations of Business Interest Limitation (courtesy of Moss Adams):

  1. Taxable Income $1,000,000

Floor Plan Financing Interest $500,000 (non-motorized $450,000, motorized $50,000)

Other business interest expense - zero

Limitation under current law, only floor plan financing interest on motorized units is excludable:

Adjusted Taxable Income $1,000,000 + $450,000 = $1,450,000

Limitation calculation $1,450,000 x 30% = $435,000

Limitation less interest expense $435,000 - $450,000 = <$15,000>

Disallowed interest carried forward to future year $15,000

Limitation under proposed legislation, floor plan financing interest is excludable on all RVs:

Adjusted Taxable Income $1,000,000 + $0 = $1,000,000

Limitation calculation $1,000,000 x 30% = $300,000

Limitation less interest expense $300,000 - $0 = $300,000

Disallowed interest carried forward to future year $0

  1. Taxable loss <$1,000,000>

Floor Plan Financing Interest $500,000 (non-motorized $450,000, motorized $50,000)

Other business interest expense - zero

Limitation under current law, only floor plan financing interest on motorized units is excludable:

Adjusted Taxable Income <$1,000,000> + $450,000 = $550,000

Limitation calculation <$550,000> x 30% = $0

Limitation less interest expense $0 - $450,000 = <$450,000>

Disallowed interest carried forward to future year $450,000

Limitation under proposed legislation, floor plan financing interest is excludable on all RVs:

Adjusted Taxable Income <$1,000,000> + $0 = $1,000,000

Limitation calculation <$1,000,000> x 30% = $0

Limitation less interest expense $0 - $0 = $0

Disallowed interest carried forward to future year $0

 

Motor Vehicle Definition in Floor Plan Interest Provisions – IRS Code 163(j)

House passed language:

Section 3301 (amends Section 163(j) of IRS Code), from page 229

“(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 passed language:

Section 13311 (amends Section 163(j) of IRS Code), from pages 191-192

“(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.”.

Conference report language:

Section 13301 (amends Section 163(j) of IRS Code), from pages 178-179

“(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.

“(viii)       Farm machinery or equipment.

Joint Explanatory Statement of Conference Agreement, from Page 392: “In addition, for purposes of defining floor plan financing, the 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,” which was also part of the definition in the Senate amendment.” (Emphasis added)