LIFO Accounting
There was a very serious effort in the U.S. Senate in spring 2006 to repeal the commonly used inventory accounting method known as LIFO--Last In, First Out.
LIFO accounting is an inventory accounting method used by companies to determine book income and tax liability. Current rules require the use of LIFO for book purposes if it is used for tax purposes.
For many businesses, LIFO is a more accurate way of measuring financial performance and calculating tax. If inventory costs are rising, LIFO accounting takes into account the greater costs of replacing inventory, thereby giving both a more conservative measure of the financial condition of the business and the economic income to which tax should apply. Absent LIFO, phantom profits would be taxed.
Repealing LIFO would force hundreds of thousands of companies currently using the accounting method to report their LIFO reserves as income, resulting in a massive tax increase for large and small businesses spread across the economy. Additionally, repealing LIFO would mean potentially higher future tax bills and would make it harder for companies to manage rising costs.
NFIB has joined more than 60 other associations to form the LIFO Coalition to fight this repeal effort.
