The following letter was written by Richard Cook, of HARDI member Johnson Supply, to the editor of the Star Telegram (Fort Worth, Texas) in response to an article attacking LIFO published last month.
I write to you in response to the April 24th article in the Star-Telegram, which details Congressman Roger Williams’ support of the Last In, First Out (LIFO) inventory accounting method. As someone who is deeply aware of LIFO, its utilization, benefits and pitfalls, I found the article to be at best lacking in context and at worst misleading.
As background, I am the Chief Operating Officer of Johnson Supply Company, an employee-owned HVAC distribution company, founded in 1953, with 24 locations throughout Texas and Western Louisiana. Decades ago our company made the election to use LIFO, as it represented the most effective way to account for an inventory which is closely linked to commodity pricing.
The article insinuates that LIFO is only used by large companies, primarily auto dealers and pharmaceutical and energy companies. This is not true. Countless businesses, large and small, including grocers, jewelers, flower companies and yes, HVAC distributors, utilize this accounting method, and the article’s portrayal of its proponents is disingenuous.
Among the errors in this article is the insinuation that utilizing LIFO is a method of permanent tax avoidance. That is simply not the case. Tax is paid on inventory when the inventory is sold or liquidated, period. The article also fails to mention there are other methods of accounting for inventory cost, including FIFO and average cost – both of which have an effect on taxes. Singling LIFO out calls into question objectivity, as well as failing to mention that when prices go down, taxes are higher with the LIFO method of accounting.
I for one am glad that someone like Congressman Williams, who has a strong business background and understanding of what it’s like to write on the front of a check, is serving us in Congress. His knowledge that LIFO is a proven accounting method, and its use in multiple countries (Germany, Japan, etc.), is an asset as Washington begins to tackle tax reform.
The debate over tax reform is a difficult challenge, and one that is not made any easier by the lack of understanding a basic accounting method such as LIFO. I hope Congressman Williams continues his fight on behalf of the countless industries and small businesses that utilize LIFO.