Supply Chain Woes Put Businesses in Path of Tax ‘Time Bomb’

The global supply chain disruptions that have limited the availability of everything from new cars to the latest video game consoles are about to cause a tax headache for a wide swath of businesses.

Businesses that sink large amounts of cash into inventory, such as car dealers, equipment rental companies, and grocers, are seen as particularly vulnerable because many use an accounting method known as “last-in, first out,” or LIFO, for valuing their inventory. Normally, that method helps businesses lower their reported income and associated tax bill when prices rise.

Under LIFO rules, a decline in inventory value can trigger ...