Sales Up, Rental Up – Taxes Up?Written By Garry Bartecki
Article Date: 09-01-2004
Copyright (C) 2004 Associated Equipment Distributors. All Rights Reserved.
Don’t let the bonus depreciation expire; use it today.
I just returned from AED’s summer Board meeting in Palm Beach (it’s tough, but someone has to do it). Even with the daily rains, the news overall was good. Heck, it was better than good, it was great. All regions reported much better business conditions with more expected in 2005 and 2006, once the highway funds get released.
From what I heard at the meeting, if you are in the construction equipment business, you should be having a better year than 2003, and if you are not, you better figure out why. The cycle is again moving in your favor, and you have to strike while the iron is hot.
You should be seeing a swing in the old demand/supply curve, with demand up and supply low. You should be seeing this phenomenon in terms of new units, used equipment and rental. In short, you should be making more money because when the demand/supply curve swings in your direction, pricing and profits firm up, as they should.
To spice activity up even further, you still have the bonus depreciation to remind customers about. This highly effective tax legislation expires December 31, 2004. Customers have to take delivery and place a new unit in service by this date to have access to the credit. Be careful about making promises about bonus depreciation, if your delivery is out four months or longer. Time is running out, and customers have to act now if they have any hope of getting the bonus this year.
Even though higher interest rates are a negative, avoiding them by buying equipment before they change is another plus for customers who were planning on buying anyway. Combined with a reminder about bonus depreciation, you have a great one-two punch to work with.
Because construction activity is picking up, there is a good chance contractors are making decent money in 2004. If so, their taxable incomes should approach the higher brackets. Reminding customers how the bonus depreciation helps reduce 2004’s tax bill should probably be in your sales presentation.
While we did not talk specifically about rental rates, conversations I heard certainly indicated demand is up and rates are firming up. This is great news for those of you in the rental business. Are you trying to stick to your rates now that demand is up? If not, it’s time to have a chat with the rental department.
I have seen various reports cross my desk that say the prices you pay for equipment and parts are on the rise – not surprising, given the steel shortage and demand increase. If this is indeed true, dealers need to review LIFO opportunities again for every segment of their inventory where it applies.
Many companies have been able to generate significant tax savings over the years using LIFO. It’s not as complicated as it used to be and since it’s not uncommon in the dealer environment, there should be plenty of help out there if you need it. No sense reinventing the wheel if you can avoid it.
AED’s 2004 Executive Forum September 9-10 will be an excellent program. One of the sessions will discuss new tax initiatives related to rent-to-sell inventory, as well as how to use tax-free exchanges to minimize taxes, in detail. If you have thoughts or questions about either of these topics, be sure to register. You will not regret it.
Another issue discussed at the Board meeting was the cost associated with customer use of credit cards. What members do about it, how they try to recover it, have they found ways to mitigate it. It’s an interesting topic. Some dealers refuse to take credit cards for certain purchases because the cost of doing so seriously erodes profit margins. AED is looking into ways to lower this cost.
And, before I forget, at the Forum, we will also review how dealers can get the maximum benefit from the new profit planning tools developed as part of the new CODB report.
See you at the Forum.
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