HVAC Distributors Present Issues on Capitol Hill
Tax Reform Takes Center Stage at Washington Conference
The goal of the annual event is to ensure members of Congress are made aware of the issues and legislation that are most important and influential to the HVACR industry and HARDI’s members.
“You’d be shocked by the number of staffers who don’t know anything about HVAC distribution,” said Jon Melchi, HARDI’s director of government affairs. “We need to teach Congress about our industry and your business. We’re trying to develop relationships with members and their staff, and it’s important that we develop these contacts.”
Melchi noted that, while it is possible to travel to the Capitol to speak with elected officials throughout the year, it is most effective when a large group of business owners with a common agenda, such as HARDI members, participate in an event like the Congressional Fly-In. He said that speaking to Congressional members’ staffs and following up with them after the visit is equally as important as the visit itself.
“One in five members of Congress today is a former staff member,” said Melchi. “So, when you’re speaking with these staff members, remember that one of them may be a Congress member in the future.”
While it may not always seem productive to speak with elected officials whose views on certain legislation differ from HARDI’s view, Melchi said it is still important to make sure that lawmakers, regardless of the side of the aisle they sit on, are at least aware of these issues.
“Sometimes our issues align with certain folks, and sometimes they don’t,” Melchi said. “We have got to stay persistent on these issues.”
Plan of Attack
Before HARDI members set off to canvass Capitol Hill, attendees first spent an afternoon in a conference room at the Hyatt Regency on Capitol Hill discussing HARDI’s position on the issues it considers most important to HVACR distributors.
The association supports the Marketplace Fairness Act, which would require retailers in member states to collect taxes on online purchases; the Promotion and Expansion of Private Employee Ownership Act of 2013, which would expand the availability of employee stock ownership plans in S corporations; the American Job Protection Act, which would repeal provisions in the Patient Protection and Affordable Care Act (PPACA) requiring certain businesses with 50 or more employees to provide health insurance; and the Protect Small Business Jobs Act of 2013, which provides small businesses with more time to rectify a regulatory issue before enforcement action is taken.
Members also discussed tax reform at length during the legislative briefing. Talbot Gee, executive vice president and COO of HARDI, said it is important for HARDI members to get members of Congress to realize that many of HARDI’s members are family-owned small businesses that would be greatly affected by current tax
“When you hear ‘small business,’ you immediately think of the very small companies, the mom and pop stores, and they don’t think of us,” Gee said. “They don’t know how to deal with us in terms of tax reform, so your knowledge is really valuable in these meetings.”
Several issues relating to tax reform, including the estate tax, rising premiums under PPACA, and repeal of the last in, first out (LIFO) method of accounting, proved to be major issues during the Fly-In.
“Everybody’s taxes went up on social security and all taxes associated with the health care bill, so if they’re going to do tax reform, it’s going to need to be much simpler,” said Melchi. He added that Americans, including HARDI members, spend too much time and too much money on
Melchi discussed the estate tax, which has a direct, detrimental effect on several HARDI members that are family-owned businesses. Recent changes to the estate tax are a step in the right direction, he said, though HARDI members need to remain vigilant in pushing for elimination of the estate tax.
“They raised the tax rate from 35 percent to 40 percent, but they did cap it at $5 million adjusted for inflation, so we still need to press on,” he said. “This is just a bad, bad tax, and it affects people in our industry in a huge way.”
Melchi said the estate tax is double taxation, plain and simple, and it’s not fair. “I firmly believe in no taxation without respiration,” he said. “Simply dying doesn’t mean you should have to write out a check to the government.”
In addition to advocating for the repeal of the estate tax, a top concern for many HARDI members proved to be the potential repeal of LIFO — the accounting method that uses the last inventory purchased as the first inventory sold in order to calculate taxes. The accounting method has been widely used since the 1940s, and roughly half of HARDI distributors use the LIFO method.
“This would be a retroactive tax,” Melchi explained to event attendees. “How are you guys going to pay that tax? This is a big deal.”
Melchi added that many large corporations, including pharmaceutical and oil companies, use the LIFO method and have a large LIFO reserve. But for many of HARDI’s members, repealing LIFO could result in the company having to liquidate property or even eliminate jobs in order to pay the retroactive tax.
“This would be unprecedented and very bad,” Melchi said. “We need to stay diligent on this. The reason we talk about it all the time is because a lot of our folks would be in a lot of trouble if we didn’t talk about it all the time.”
Importance of Advocacy
With so many legislative issues, HARDI and the participants in the Fly-Ins are stressing it is more important than ever to advocate for legislation that will benefit the industry and not place undue burden on small businesses.
Q&A with Karen Madonia
Karen Madonia is co-chair of HARDI’s Government and Trade Relations Committee, which develops and recommends advocacy strategies, leads fact-finding missions, and fashions arguments on behalf of the HVACR distributor membership.
“Our mission is to keep HARDI membership informed of pending legislation and regulatory issues. In order to grow our businesses, HARDI members have to understand the field on which we’re playing.”
Q: In the past year or so, what have been some of the biggest legislative issues that have affected your members, and what has the committee done to advocate for its members regarding those issues?
A: On the legislative side, the biggest issue has been tax reform. The goal is to protect the last-in, first-out (LIFO) method of accounting and to continue to fight for full repeal of the estate tax. We got to testify before a Small Business Subcommittee last year, which gave us the opportunity to tell those committee members exactly how the estate tax affects the thousands of family businesses that make up the U.S. economy. We want to make sure that Congress understands that while corporate tax reform is necessary, they cannot allow that to happen on the backs of pass-through entities, like sole proprietorships, partnerships, LLCs, and Subchapter S corporations.
Q: At the moment, what is the most pressing issue for your American distributor members, and how is the committee handling it?
A: I would say that the most pressing matter right now is the regional standards lawsuit. HARDI was not a part of the consensus agreement that resulted in the establishment of regional standards, and has fought hard to eliminate them due to the inventory issues our members would have and because enforcement could be a significant burden for distributors.
Q: What are some upcoming legislative issues that the committee is keeping an eye on?
A: We’re advocating for the Marketplace Fairness Act, which allows states to collect sales tax on internet purchases, because we feel that it helps level the playing field for all businesses. We’re watching Congress’ movement on employee comp time, because that affects all of our members and their relationships with their employees. We’re also trying to help our members understand and comply with the Affordable Care Act.
Q: What are your members’ biggest concerns when it comes to health care?
A: It’s all about compliance now. It is the law of the land, so it is our intent to help our members understand it the best they can and learn how to comply with the many new regulations that resulted from it.