Tax Plan Unintentionally Limits Deductibility of RV Trailer Floor Plan Financing

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Last year’s tax reform bill provided much needed relief for small businesses; however, last minute technical changes, made during the House-Senate conference, unintentionally disadvantaged the Recreational Vehicle (RV) travel trailer industry, by limiting the deductibility of the RV trailer dealer’s floor-plan costs.  

RV Trailers are Motor Vehicles. State and federal motor vehicle laws intended to cover RVs generally address both motorized and towable RVs. "Recreational vehicle" or "RV" typically means a vehicle that is either self-propelled or towed by a consumer-owned tow vehicle, is primarily designed to provide temporary living quarters for recreational, camping, or travel use; and complies with all applicable federal vehicle regulations. RVs include motor homes, travel trailers, and camping trailers.

             RVs are motor vehicles under NHTSA jurisdiction: The National Highway Transportation Safety Administration (NHTSA) regulates virtually all RVs. These vehicles are required to comply with Federal Motor Vehicle Safety Standards and must be of a size that can legally travel down the road. Just like cars and trucks, RVs are subject to NHTSA recall notice requirements for reporting and correcting defective vehicles and equipment.

             RV Trailers are motor vehicles under state DMVs and relevant franchise laws.   All 50 states define and regulate RVs as vehicles and the manufacturers and dealers who sell them are licensed as vehicle manufacturers and vehicle dealers. Automobiles, motorcycles and recreational vehicles are generally titled by the same agencies in the states.

RVs were specifically included in both the House and amended Senate tax bill definitions of motor vehicle going into the conference.  Both chambers clearly intended to include RV trailers as motor vehicles.

             The Conference Committee did not intend to remove the RV trailer industry, but merely to consolidate language. The Conference Committee streamlined the definition of motor vehicle by removing several itemized vehicle types, such as automobile, truck, motorcycle and recreational vehicle, and attempting to cover all of them by defining them as “self-propelled vehicles.”  Unfortunately, this had the unintended consequence of severely altering the RV exemption so that only motorhome inventory would be fully deductible; RV trailers were inadvertently excluded.

             Boats (propelled on water by oars, paddles, sails, or an engine) and RVs fulfill similar recreation niches, and both have motorized and non-motorized versions.  Boats were not removed from the definition since they are not designed for transporting persons or property on a public street, highway, or road.

RV travel trailer dealers are at a competitive disadvantage.  Other recreation dealers, including boats, motorhomes, conversion vans, motorcycles and automobiles can fully deduct the interest paid on their inventory floor plans; however, RV trailer dealers’ net interest deduction is limited to 30% of earnings before interest, taxes, depreciation, amortization, and depletion. This harms not only their profitability, but also their ability to effectively compete with other recreation dealers.

Many RV dealers sell both “self-propelled” motorhomes and RV travel trailers. Having one part of their inventory floor plan expensing remain fully deductible, while another portion is only partially deductible will inevitably lead to confusion and increase the chances of filing an incorrect return. We believe this to be another unintended consequence of the exclusion of RV trailers from the definition of motor vehicle.  

Motor Vehicle Definition in Floor Plan Interest Provisions of Tax Cuts and Jobs Act

RV dealers with $25 million or more in annual sales have a significant impact on the RV business.   In 2012, the volume of RV sales generated by these dealers was 33 percent of total annual sales, according to the U.S. Census Bureau.  RVDA estimates that dollar volumes generated by this sector of dealers grew to more than 43 percent of total annual U.S. sales in 2017.  This means that more than four out of every 10 dollars spent at an RV retail establishment is generated by a dealer with $25 million in annual sales.  

 

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. 

‘‘(iii) Farm machinery or equipment.