LIFO has been an established and recognized accounting method in the U.S. since the 1930s and is utilized for tax reporting purposes by a broad spectrum of business sectors that sell a wide range of products.  Under the LIFO method, it is assumed that the last items produced or acquired are the first items sold, allowing a taxpayer to match its current revenues against its current costs.  LIFO accounting is particularly prevalent in the pharmaceutical distribution industry, with companies using LIFO accounting for 96 percent of inventories and net sales in 2006. [i]

Recent legislative and regulatory proposals would repeal the ability of companies to continue using LIFO.  Eliminating the ability to elect the LIFO method would have a grossly disproportionate impact upon pharmaceutical distributors with inventories of high volume, high value medications. Its repeal would unfairly reverse long-standing tax policy and result in an unprecedented tax increase for these companies.

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Federal Activities

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• The Impact Of LIFO Repeal on the Pharmaceutical Distribution Industry - A White Paper Summary
• Select Blue Dog Democrats’ Letter to Budget Chairman Spratt Opposing LIFO Repeal (PDF: 168K)
• LIFO Basics (Powerpoint: 54K)

   

[i] Healthcare Distribution Management Association, Tax Accounting for Inventories and the Pharmaceutical Distribution Industry (October 21, 2008)

Contacts
Liz Gallenagh
Vice President, Government Affairs and General Counsel
703-885-0234
egallenagh@hdmanet.org