In late April of last year, the U.S. Senate proposed a permanent repeal of the use of the "Last-In, First-Out" (LIFO) inventory accounting method-an action that would translate into a massive tax increase for hundreds of thousands of American businesses. LIFO is an inventory accounting method used by companies throughout the U.S. economy to determine both book income and tax liability. Book income is the amount of earnings shown on business financial statements. Tax liability is the amount of income tax owed to the government.
The restricted use or outright repeal of LIFO is likely to have far-reaching and potentially damaging effects on any company within the professional beauty industry that relies on effective inventory management to remain profitable. Distributors, which by definition hold and maintain extensive inventories, could be seriously impacted by a loss of revenue through a largely increased tax burden.
LIFO repeal was apparently proposed in part due to a mistaken belief that LIFO is a “tax loophole” or that it is set to disappear from use. In fact, LIFO is an established, widely-accepted inventory accounting method that has been used by large and small companies throughout the U.S. economy since the 1930s.
Although the proposed repeal of LIFO was defeated last year, it is very likely that this topic will resurface – particularly given the increased pressure from Congress to close the federal "tax gap".
Background Information on LIFO Accounting
PBA is very interested in knowing how many of our member-companies use LIFO inventory accounting. Please contact Sam Leyvas, PBA's Government Affairs Director at 800-468-2274 x118.
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http://www.probeauty.org/
posted: sam leyvas
professional beauty association
