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Flooring dealers weigh pros, cons of pending tax reform

November 27-December 11, 2017: Volume 32, Issue 13

By Ken Ryan

 

Flooring retailers are cautiously optimistic that a tax reform bill currently working its way through Congress will ultimately benefit their businesses by providing much-welcomed tax relief. Of course, the devil is in the details, and there are many issues still unresolved as House and Senate members hammer out a final measure that could be signed into law by year’s end. (See Editorial on page 4 of this issue for more analysis.)

Some flooring dealers appear well versed on the potential tax implications. Among them is Nick Freadreacea, owner of The Flooring Gallery in Louisville, Ky. “While this is a moving target and certainly has a lot to be resolved before it passes, anything that can help small-to-medium-size businesses is a big help for the flooring industry. If this actually puts money back into consumers’ pockets—and stimulates the economy—then we will all benefit from that. From a business owners’ standpoint, if this can reduce taxes and add to a businesses’ cash flow, then that will help strengthen the business itself and allow business to grow again.”

Reaction to the bill among small business advocates has been mixed. Some groups praised the measure, arguing that it’s the first meaningful tax reform in more than 30 years. Others feel the bill doesn’t go far enough to help small businesses, with the more meaningful reform efforts focused on large corporations.

For their part, most flooring dealers put a positive spin on the tax plan. “My thought is if the Senate version passes, then the small business S corporations and LLCs will get to deduct 23% of the income before tax,” noted Bill Zeigler, co-owner of Charles F. Zeigler & Sons, Hanover, Pa. “Since this income typically went straight to their personal income and taxed as much as 39.6% I see a large benefit for owners. The results of these tax cuts are hard to predict, but I hope in the end the working middle class benefits.”

A lower corporate rate was also top of mind for Bobby Merideth, owner of Flooring America OKC, Oklahoma City. “A reduction in the corporate rate could add as much as 15% of taxable income to the bottom line. The additional money can be used to remodel stores, add employees or simply be placed in an interest-bearing account [if the interest rates increase].”

As presently crafted, people in high-tax, high-income states would pay more. That concerns retailers like Adam Joss, co-owner of the Vertical Connection Carpet One, Columbia, Md. “Based on headlines, I have mixed emotions and some of that stems from living in a high state tax state. Obviously, it’s tough to say because nothing has been finalized yet.”

Nonetheless, Joss said he is excited about the potential for a lower S-Corp rate. “That would put meaningful dollars back in our hands to invest in our staff/business or take home. My concerns center on two things: 1) the elimination of the state deduction; and 2) the elimination of the mortgage deduction. Both could negatively impact our customers, and that could impact our business. Only time will tell.”

Most dealers hesitated to give a full-throated endorsement of the plan because they don’t have all the details yet. As Flooring America OKC’s Meredith noted: “I would love to see simplification in the tax code. Unfortunately, it may never happen because ignorance of the tax code adds revenue to the treasury.”

Freadreacea of The Flooring Gallery sees the upside. “We have seen very little growth since the last [downturn] and this could really help the industry.”