Phone: 630-495-2282 Fax: 630-495-2260 Map/Directions
 

CATA General Counsel

CATA General Counsel - Each CATA member is entitled to a limited amount of general legal advice from the association's general counsel, Dennis O'Keefe. Dennis has extensive experience in the automotive industry, dealer line associations and manufacturer relations, as well as state and local government.
 
Dennis M. O'Keefe, P.C.
1025 W. Everett Road
Lake Forest, Illinois 60045
847-482-0400 / Fax 847-482-1366
Email: dokeefe@dmokeefepc.com
 

General Questions

I understand that dealer cash is now taxable in Illinois. Can you explain?

Does dealer cash have to be disclosed to a customer, like a rebate?

Credit run on a customer can't obtain credit. How long does the dealer have to keep the credit app and bureau?

If my dealership holds regular off site sales at a convention center, but obtains a permit that extends the convention center as part of my dealership, does the 3 day right of recission still apply?

Do you have to have a drivers license to purchase a car for cash?

Can we sell a car for cash if somebody is taking it out of country?

Can a customer purchase a vehicle for his mother "cash" utilizing a power of attorney?

I have a caustomer buying a car that lives in Toronto,Canada. Does he have to pay sales tax?

When quoting a payment, can you pack extra money in the payment?

Can you tell me about taxation on goodwill warranty claims.

My customer wants to trade in a car he holds clear title to. Can he use the trade as a tax credit against the selling price and have the same amount sent back to him as a payoff ?

If a customer asks for a copy of there credit report Is it ok to give to them?

Do tax trades have to come from Illinois?

Can I sell a car to a person with a Matrícula Consular de Alta Seguridad. We do run a OFAC report.Thanks,Tim Bernard

If a potential customer has inquired about a vehicle but has not bought from us, how long can we keep thier contact info and keep calling him back?

do you have the most recent "new model privacy notice"

I see the question in ref to a tax credit from out of state but we need a little clarification. Specifically, if my cust resides in IL & trades a vehicle purchased/titled in another state is it okay to use that to reduce tax liability?

Does the CATA have a form we can use for the Gramm Leach Bliley Act?

PLEASE CONFIRM IF A PERSONAL TRADE IN IS ELIGIBLE FOR TAX CREDIT ON A NEW LEASE TRANSACTION.

Are sales people exempt from "overtime" if they are paid commission?

Is it legal to list "Was/is" pricing on used inventory? We have some window display tags that use that format. Also, can we use the same on our website pricing?

Hail damage. how to disclose and recommended forms?

A customer drove our car for two weeks and put about 1100 miles on it. we could not obtain stips required and took the car back. I remember hearing that we must disclose that it was bought and returned. is this true and if so is there a form for it?

is there a legal limit in illinois for an itemized charge called shop supplies?

If I advertise on Spanish radio and TV but the customer understands English. Do I need a form signed that he understands English?

If a customer pays a large portion by credit card for a used car..as is and shown no warranty implied..is this sufficient to cover us should the customer have issues? can they dispute payment? thankyou!

I sell a car to a customer who provides me with the address of his Lake Geneva, Wisconsin home. Do I need to charge him Illinois sales tax?

How does a vehicle qualify for interim use exemption from sales taxes?

I spot delivered a car to a customer but I cannot obtain financing for him. What do I do if the customer refuses to return my vehicle or returns it with excess wear and tear or damage?

Does prior use need to be disclosed on the sale of a used vehicle?

My customer has informed me that he is “revoking acceptance” of the new car that he purchased. What does this mean and how can I contest it?

May I do a direct mail campaign wherein a coupon is offered to further discount a vehicle for sale?

May I send out a direct mail piece targeting customers who have filed for bankruptcy?

I am a Cadillac dealer. My buddy, who is the neighborhood Chevrolet Dealer, wants to purchase a Cadillac from me for his personal use. He provides me with a copy of his resale certificate and asks that I not charge retailers occupation tax/use tax on the transaction. Can I be held liable?

How far back may the manufacturer audit warranty claims or other incentive and reimbursement programs?

What amount of damage must be disclosed on a new or used vehicle?

How far away must a relocated or new franchise be from an existing franchise of the same line make?

What does the FTC used car rule generally provide?

May I obtain a consumer’s credit report without written permission?

My customer purchased a vehicle, and executed all the paperwork. Now, two days later, he has returned the vehicle to my dealership and claimed that he is rescinding the sale under the Federal Trade Commission’s “Cooling-Off Rule.” Can he do this?

May I advertise a price for a vehicle wherein all rebates have been deducted, including a “loyalty” rebate that only applies to current owners of my manufacturer’s vehicles?

May I offer an “Internet special” where a specific vehicle or vehicles from my inventory are available at a lower price for a consumer who has logged onto my website and printed out a discount coupon?

Is it ok/legal to write on the face of a buyers guide, "see (salesman name for more information?"

If Il dealer leases vehicle to Indiana or Michigan customer with a monthly use tax on contract do we charge Illinois tax ?

With regard to the FCRA motor vehicle advertising does Illinois have any special provisions that are not in the Federal Law?

What is the percentage and maximum a dealer can charge for shop supplies? Can we just charge a flat fee per RO?

Questions And Answers

I understand that dealer cash is now taxable in Illinois. Can you explain?

You should note that dealer incentives paid to a dealer based upon the purchase of a vehicle from the supplier, and not conditioned on the retail sale of the vehicle, are not taxable. On the other hand, dealer incentives paid to the dealer and conditioned on the retail sale of a vehicle are taxable, except that:
  1. Dealer incentives contingent, at the time of sale, on making or having any additional retail sales (stair step incentives) are not taxable; and
  2. Dealer incentives or bonuses contingent on the dealer meeting certain manufacturer required marketing standards, facility standards or sales and service department satisfaction goals are not taxable (such as CSI store based or marketing based incentives).

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Does dealer cash have to be disclosed to a customer, like a rebate?

There is no requirement that dealer cash be disclosed to a customer. However, some forms of dealer cash are subject to Illinois Sales/Use tax. If a dealer elects to pass the tax on to the customer, the amount of tax shown will indicate that there is dealer cash, and how much it is. Alternatively, the dealer can pay the tax himself and not disclose.

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Credit run on a customer can't obtain credit. How long does the dealer have to keep the credit app and bureau?

Crowe Horwath provides a records retention checklist, wherein they note that denied credit applications must be kept for two years.

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If my dealership holds regular off site sales at a convention center, but obtains a permit that extends the convention center as part of my dealership, does the 3 day right of recission still apply?

No. The Federal Trade Commission’s "Cooling-Off Rule," which provides three days to cancel purchases of $25 or more, applies to sales at the buyer's home, workplace, or dormitory, or at facilities rented by the seller on a temporary or short-term basis, such as hotel or motel rooms, convention centers, fair grounds, and restaurants. It applies even when the purchaser invites the salesperson into his home. However, it does not apply to sales made on the premises of the dealership. It further specifically exempts sales of automobiles, vans, trucks or motor vehicles at auctions, tents sales or other temporary places of business, provided that the seller is a seller of vehicles with a permanent place of business.
 

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Do you have to have a drivers license to purchase a car for cash?

A driver’s license is not necessary to buy a car in Illinois.  But the customer has to show you some form of identification so that you are comfortable that the person is who he says he is, for OFAC and other identity checks. As for proof of insurance, dealerships are not reduced to checking insurance on behalf of the police; rather, they check for it on behalf of the lien holder. But if it’s a cash deal, insurance is not your problem. However, knowing the customer doesn’t have a driver’s license, you can’t let him drive the car away. He would have to bring a licensed driver with him to take delivery. The amount of these hypothetical cash deals is unknown. But if the amount is above $10,000, it will trigger Form 8300 being filed with the government.

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Can we sell a car for cash if somebody is taking it out of country?

You can sell a car for cash if it is leaving the country. But if the customer takes delivery of the vehicle in Illinois, it is a taxable transaction. To avoid tax, you the dealership must arrange with a freight forwarder to put the car onto a boat. If the customer doesn’t get possession of the car until it reaches Japan, the deal would be tax-exempt. Google the term "freight forwarder Chicago" and you’ll see about 12 firms to choose from. Keep a copy of the bill of lading in the deal jacket (don’t send to Springfield). On the ST-556, Part 5 deals with tax-exempt transactions. Check the final box, Other, and on the line beside it, print Delivered to Freight Forwarder. The amount of these hypothetical cash deals is unknown. But if the amount is above $10,000, it will trigger Form 8300 being filed with the government.

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Can a customer purchase a vehicle for his mother "cash" utilizing a power of attorney?

The customer can place the title/registration in anyone’s name he chooses. Power of attorney is written authorization to represent or act on another's behalf in private affairs, business, or some other legal matter. It would only needed from the other direction, say, if the trade-in is in his mother’s name and she’s not present at the transaction. The amount of these hypothetical cash deals is unknown. But if the amount is above $10,000, it will trigger Form 8300 being filed with the government.

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I have a caustomer buying a car that lives in Toronto,Canada. Does he have to pay sales tax?

The Illinois Vehicle Code defines a state as all 50 states plus Canada and Puerto Rico, so this transaction essentially is no different from a sale to someone from Wisconsin. On Part 5 of Form ST-556, you just have to smash-mouth the word Canada where the 2-letter state abbreviation goes. Issue a drive-away permit for customer to get the car home.

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When quoting a payment, can you pack extra money in the payment?

Payment packing is not allowed, as it would take you out of compliance with the Equal Credit Opportunity Act and the Truth-in-Lending Act. If a monthly payment is quoted, use an APR to calculate the payment. The APR should be the same APR that the customer ends up with on the Retail Installment Contract. After a rate is agreed upon in the sales process, don't adjust it when the customer reaches the F&I process, as a way to sell F&I products.
 
Many dealers are joining the F&I Menu selling parade, and with good reason. Early returns indicate that when every customer is offered every product and permitted to make an informed decision about the features and benefits of the products, as well as the effect on his or her monthly payment, three things happen. Product penetration increases, customer satisfaction improves and less time is spent closing the deal.

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Can you tell me about taxation on goodwill warranty claims.

Many dealers provide "goodwill" repair services on vehicles that are out of warranty. However, not all of those dealers are aware—according to recent Illinois Revenue Department audits—that the parts used in goodwill repairs are subject to the state’s 6.25 percent use tax, even though the customer does not pay for the repair.

In cases of warranty and recall repairs, sales tax is not charged on parts because the tax originally paid (when the vehicle was purchased) is deemed to cover all parts used in the repairs. Likewise, any parts used to repair or enhance new or used vehicles held in inventory are covered by the sales tax collected on the eventual sale of the vehicle.

But goodwill repairs are provided at no charge to the customer, at the option of dealer and/or the factory. Because no legal obligation exists to compel the dealer to provide the goodwill repair, the state revenue department considers the repair to be a gift.

Illinois use tax applies to parts purchased tax-free for resale which are used or consumed by the dealership in its use, including as a gift to a customer. The CATA board of directors is considering a challenge to the Revenue Department statute, in an attempt to exclude taxes on parts used in goodwill repairs.
 
If you have other questions, please direct them to my phone or email below.

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My customer wants to trade in a car he holds clear title to. Can he use the trade as a tax credit against the selling price and have the same amount sent back to him as a payoff ?

Any time you pull money out of the transaction, in terms of cash back, it reduces the value of the trade-in. Can't have your cake and eat it too. If the trade-in is worth $10K but you pocket $2K, then trade-in now is worth $8K. Make sense?

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If a customer asks for a copy of there credit report Is it ok to give to them?

You ought to give them the score but not the entire report. For one thing, the report a business receives is most often coded for computer processing, abbreviates lender names, and organizes the information according to the dealer’s or lender’s specifications. It actually has less information in it than the report consumers can obtain free every 12 months.
 
 
You would indicate the score on the Credit Score Disclosure notice that provides the credit score and other important related information. The CSD notice is one of two types of disclosures designed to increase awareness that a consusmer’s credit history is being used by a lender to make a decision to extend credit. This type of notice is sent to all approved applicants. Lenders can use the Risk-Based Pricing (RBP) notice instead of a CSD notice as an alternative method of complying with the regulation.
 
The Risk-Based Pricing rule went into effect on January 1, 2011. Risk-based pricing reflects the common practice of setting credit terms, such as interest rate or credit limit, according to a consumer's credit risk. Lenders that employ risk-based pricing generally offer more favorable terms to consumers who have credit histories that reflect lower risk and less favorable terms to those whose credit histories reflect higher risk.

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Do tax trades have to come from Illinois?

A tax trade that is granted by another state cannot be used to reduce tax obligations in Illinois. Those things don’t cross state lines.

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Can I sell a car to a person with a Matrícula Consular de Alta Seguridad. We do run a OFAC report.Thanks,Tim Bernard

Yes, you can accept the card as an ID. A U.S. House committee in 2003 proposed disallowing their acceptance, but on Sept. 14, 2004, the U.S. Congress voted down a motion to prevent financial institutions from accepting consular IDs.

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If a potential customer has inquired about a vehicle but has not bought from us, how long can we keep thier contact info and keep calling him back?

Consumers who are registered in the National Do Not Call Registry still may be called under three instances: (1) The consumer has made a purchase from the dealership in the past 18 months; (2) The consumer has made an inquiry to the dealership in the past 30 days; or (3) the consumer has provided written consent—in advance of any call—to permit such calling. Any consent form, according to the FTC, must be clear and conspicuous as to its intent.
 
All dealers must have a method to make certain they do not call customers beyond the time frames described above. Also, requests not to be called, even during the time frames, must be honored. Noncompliance penalties can reach $11,000 per call after it is determined the number should not be called.

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do you have the most recent "new model privacy notice"

Click here to download a publication that was developed by the National Automobile Dealers Association. It should guide dealers in developing their new Privacy Notices. Templates to plug in details specific to each store are toward the back.

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I see the question in ref to a tax credit from out of state but we need a little clarification. Specifically, if my cust resides in IL & trades a vehicle purchased/titled in another state is it okay to use that to reduce tax liability?

It doesn’t matter where the car was purchased or titled. If the deal goes down in Illinois, the customer is entitled to whatever tax credits the Illinois Revenue Department makes available.

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Does the CATA have a form we can use for the Gramm Leach Bliley Act?

I don’t have a GLB form, but a dealer can throw one together based on the following information:
The regulation is primarily a reporting requirement. It does not require dealers to take (or decline to take) any action on accounts or transactions that are the subject of a FinCEN request. New Requirements The FinCEN regulation imposes the following requirements on automobile dealers:

1. If requested by FinCEN, a dealership must expeditiously search its records to determine whether the dealer has maintained (or currently maintains) an account for or has engaged in a transaction with any individual, entity or organization identified by FinCEN. Unless FinCEN indicates otherwise in its information request, a dealer may limit the search of its records to: a. any current account maintained for the named suspect; b. any account the dealer maintained for the suspect during the preceding 12 months; and c. any transaction conducted by (or on behalf of) the named suspect during the preceding 6 months that the dealer is required by law or regulation to record or that the dealer has, in fact, recorded and maintained electronically. Note: If the dealer has questions about the scope or terms of the request, the dealer should contact the federal law enforcement agency that forwarded the information request to FinCEN. (The contact information of that agency will be included in the information request.) However, if the dealer finds a match, the dealer should send the report described below to FinCEN and not to the requesting federal law enforcement agency.

2. If the dealer identifies such an account or transaction, the dealer must send a report to FinCEN in the manner and time frame specified in the FinCEN request. Unless otherwise indicated in the request, the search requirement is retrospective and does not require dealers to report on future account opening activity or transactions. Note: In the short term, FinCEN anticipates that its requests and the reports it receives will be accomplished through a combination of e-mail and fax transmissions. FinCEN may determine later to use a secure network to send requests and receive reports.

3. The report must contain: a. The name of the individual, entity or organization; b. The number of each such account, or in the case of a transaction, the date and type of each such transaction; and c. Any Social Security number, taxpayer identification number, passport number, birthday, address, or other similar identifying information provided by the individual, entity or organization when each such account was opened or each such transaction was conducted.

4. If a dealer receives an information request, it must designate one person at the dealership to be the point of contact regarding the request and any future requests which the dealership receives from FinCEN. If requested by FinCEN, a dealer must provide FinCEN with the person's name, title, mailing address, e-mail address, telephone number and facsimile number in the manner specified by FinCEN. Dealers who have provided FinCEN with contact information must promptly notify FinCEN of any changes to that information.

5. Dealers are prohibited from using information provided by FiCEN for any purpose other than: a. Providing FinCEN with the required report; b. Determining whether to establish or maintain an account or engage in a transaction; or c. Assisting the dealer in complying with the anti-money laundering program requirements set forth in FinCEN regulations. Note: As indicated above, FinCEN has not applied anti-money laundering program requirements to automobile dealers as of September 2002.
 
6. Dealers also are prohibited from disclosing to any person, other than FinCEN or the federal law enforcement agency for whom FinCEN is requesting information, the fact that FinCEN has requested or obtained such information (except as necessary to process the request).
 
7. Dealers must maintain adequate procedures to protect the security and confidentiality of requests from FinCEN for such information. This requirement is deemed satisfied if a dealer applies to this information the same procedures it has established to comply with section 501 of the Gramm Leach Bliley Act (15 U.S.C. 6801) and the Federal Trade Commission's implementing regulation (16 CFR Part 314) regarding the protection of nonpublic personal information. Note: The FTC regulation referred to above is separate from the FTC's Financial Privacy regulation that dealers were required to fully comply with by July 1, 2001.
 
The FTC regulation referred to above creates Standards for Safeguarding Customer Information that dealers must comply with by May 23, 2003. (To obtain the FTC standards, visit www.ftc.gov/os/2002/05/ safeguardfrn.pdf) If a dealer has not yet created FTCcompliant safeguarding standards to apply to the FinCEN information requests, the dealer must nevertheless ensure it presently "maintain[s] adequate procedures to protect the security and confidentiality of requests from FinCEN."

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PLEASE CONFIRM IF A PERSONAL TRADE IN IS ELIGIBLE FOR TAX CREDIT ON A NEW LEASE TRANSACTION.

Yes, the trade-in of tangible personal property reduces the transaction price, whether for a lease or sale. The common confusion is people who think, when coming off a lease, that they can get a trade-in credit. Since they don’t own the car, there is no credit available because they have nothing to trade in.

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Are sales people exempt from "overtime" if they are paid commission?

The Fair Labor Standards Act gives auto dealers a break when it comes to overtime. The act states that "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles … employed in a non-manufacturing establishment primarily engaged in the selling of such vehicles … to the ultimate purchaser" is exempt from federal overtime requirements.
 
Equally important: make sure you avoid the minimum wage trap when paying commissioned salespeople. Just because a commissioned salesperson doesn’t sell any cars one week doesn’t mean you don’t have to pay him or her the minimum wage. Under the FLSA, employees must be paid for all hours they work regardless of their compensation arrangements. Salespeople, even if most of their income is in the form of commissions, are entitled to prompt payment of minimum wages on a regular payday—e.g., weekly, biweekly or monthly. Penalties for violating the rule can be substantial.
 
There are tips to follow to ensure compliance with minimum wage rules:
  • Establish commission settlement periods of one month or less.
  • Consider advancing a weekly "draw" to salespeople and settling their commissions on a biweekly or monthly basis. When settling the amount due at the end of the period, the dealer may credit draws or advances against commissions, provided the settlement results in payment of the minimum wage for all hours worked.
  • If a salesperson’s commissions fall short of the minimum wage for hours worked during the settlement period, the dealer must pay the difference to the salesperson in the form of a subsidy. The subsidy may be carried forward and offset against future commissions earned but not net paid, provided such subsidy recoupment doesn’t result in violation of minimum wage requirements for the relevant pay period.
  • Excess earned but unpaid commissions may be carried forward and applied toward minimum wages due in a subsequent period. Once a commission has been paid, however, it may not be carried forward.
  • To avoid confusion, adopt a written policy that establishes a definite pay period. Keep accurate daily time records for all hours worked by salespeople, including lunch and dinner breaks.
  • At the end of each pay period, compare hours worked by each salesperson with commissions earned to ensure that minimum wage requirements are met and any required subsidies are paid. Establish procedures for recovering minimum wage subsidies from excess commissions earned in future pay periods. Make sure the deductions aren’t taken from future minimum wage earnings.

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Is it legal to list "Was/is" pricing on used inventory? We have some window display tags that use that format. Also, can we use the same on our website pricing?

The Illinois rules on motor vehicle advertising was amended in 2001 to forbid how you wish to advertise:
 
Section 475.360 Disclosure of Basis for Price Comparison
d) In a used-vehicle context, it is an unfair or deceptive act to use terms such as "was $____, now $____", which compare the dealer's current selling price with a higher price; provided, however, a dealer may compare an advertised price with a retail value listed in a current, nationally recognized, and published price guide book. Said book price must be from the current regional issue from the trade area where the advertisement appears, and the advertisement must clearly and conspicuously disclose which book is quoted in close proximity to the advertised price. In addition, the advertisement must clearly and conspicuously include the following disclaimer in at least ten-point bold-faced type: "The value of used vehicles varies with mileage, usage and condition. Book values should be considered estimates only." Under no circumstances may the Manufacturers Suggested Retail Price (MSRP) be used as a basis for price comparisons for used vehicles.
 
Online advertising is bound to the same rules as other media.

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Hail damage. how to disclose and recommended forms?

Nothing specific about damage by hail. The issue of damage disclosure is the fourth matter explained at http://www.cata.info/resources/dealer_forms/, including a form for customer to acknowledge the damage was disclosed.
 

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A customer drove our car for two weeks and put about 1100 miles on it. we could not obtain stips required and took the car back. I remember hearing that we must disclose that it was bought and returned. is this true and if so is there a form for it?

A car is only new once, so if you can stop the titling paperwork in time, that's great; it's still a new car. But if the paperwork has made its way through the Secretary of State's office, what you have on your hands is a very low-mileage used car. I don't know of a form for your situation. It would just be a used vehicle for sale.

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is there a legal limit in illinois for an itemized charge called shop supplies?

This is not one of the charges that are monitored or set by the state of Illinois. Therefore, regular transaction rules apply. Meaning that any additional charges added at the time of the repair would have to be detailed prior to obtaining permission to service the vehicle. If notification was not given at time of permission, then the customer could refuse the charge.

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If I advertise on Spanish radio and TV but the customer understands English. Do I need a form signed that he understands English?

The law doesn’t account for the language used to advertise something. Rather, the stipulation rests on what language is used during negotiating the selling price. If a language other than English is used, there are two versions of essentially the same statement that declares the customer understood the terms of the negotiation. One version is used if the customer provides his/her own interpreter -- a spouse, relative, friend, etc.; the other version is used if the interpreter is an employee of the dealership. The CATA has that statement translated into four languages (plus English, so you can read what it says): Spanish, Polish, Korean, and Russian. If the dealership negotiates the deal in a language other than those, they would have to translate the statement. See "Non-English Language Transactions and Negotiations" at http://www.cata.info/resources/dealer_forms/.
 

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If a customer pays a large portion by credit card for a used car..as is and shown no warranty implied..is this sufficient to cover us should the customer have issues? can they dispute payment? thankyou!

A customer absolutely can dispute payment involving credit card. In addition, American Express credit card merchant agreements state that a dealer must provide full warranty for at least one year or 12,000 miles on new and used vehicles.
 
Consumers increasingly are interested in making large purchases with credit cards in order to reap the cards’ bonus awards. But retailers can be stung with heavy merchant fees for such transactions, and dealers can be damaged by customers who invoke their right to rescind a contract during the first 90 days after delivery. Granted, because the customer signs a contract in addition to the expressed contract of the credit card, the dealership probably would prevail over someone who tried to renege. But in the end, it probably would be best to try to persuade your customers to use a more traditional method of payment, i.e., cash or check.
 
Credit card companies have come to recognize dealerships as two stores in one, wherein credit cards can be used in the service department but not in the showroom. If the dealership wants to operate that way, it has to get its merchant agreements amended to reflect that, and the store must not put the Visa/MasterCard stickers in the showroom window. If the dealership similarly wants to limit the dollar amount that can be applied to a credit card, they similarly need to build that into the merchant agreement and they need to develop a customer disclosure explaining the store’s policy, and that should be displayed by the cashier’s window in areas that accept payment by credit card.
 

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I sell a car to a customer who provides me with the address of his Lake Geneva, Wisconsin home. Do I need to charge him Illinois sales tax?

The Illinois Revenue Code provides an exemption for Sales Taxes for purchases made by non-residents of Illinois. The fact that a customer has a domicile outside of Illinois does not mean that he is not an Illinois resident. However, beginning July 1, 2008, the Department of Revenue holds the dealer to the following requirements:
 
  1. The purchaser must sign the following certificate: "I (purchaser), under applicable penalties, including penalties for perjury and fraud, state that I am not an Illinois resident. I understand that if I am a resident of Illinois that I am also liable for tax, penalty and interest on this purchase"
  2. The purchaser must also provide one of the following:
    1. A copy of the purchaser’s permanent non-IllinoisDrivers License; or
    2. If a copy of the non-Illinois Drivers License is not kept or an Illinois license is present, a rebuttable presumption that the purchaser is an Illinois resident is created, which in turn requires the dealer tomaintain other evidence of the non-residency ofthe purchaser, such as (i) Voters Registration Cardwith a non-Illinois address, or (ii) a copy of apurchase contract or lease agreement for a new non-Illinois residence, or (iii) a copy of a non-resident taxreturn, or (iv) credit report listing the purchaser’s primary residence in another state, or (v) property tax records claiming a homestead in another state,or (vi) other similar documentation.
If the documents above are kept, then, absent fraud, the Department will only proceed against the purchaser for any claim that the exemption did not apply. If the documentation above is not kept, the Department will disallow the exemption, subject to further review by the Department. In the case of a motor vehicle lease, the above provision shall apply to the lessee as if the lessee was the purchaser.
 

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How does a vehicle qualify for interim use exemption from sales taxes?

Beginning July 1, 2008, the Illinois Department of Revenue set forth certain tests for automatic disqualification, safe harbor, and situations not involving either of the above with respect to interim use exemption.
 
Certain activities automatically disqualify a vehicle from the interim use exemption. They are:
 
  1. Titling a vehicle in any person other than the retailer, manufacturer, the manufacturer’s captive finance company; or
  2. Retailer claims IRC Section 179 depreciation on the vehicle (i.e., treats the vehicle as a totally deductible business expense in the first year); or
  3. If the vehicle is leased, the gross receipts from the lease of the vehicle exceeds the ultimate sales price of the vehicle.
If the dealer meets all six of the following requirements, the vehicle will automatically qualify for the interim use exemption:
  1. The vehicle must meet one of the following threerequirements. It is:
    1. Listed in the dealer’s records as inventory; or
    2. Not depreciated by the dealer under IRC Section 167; or
    3. Otherwise indicated on dealer’s records, documents, or operations as available for sale during the interim use period.
  2. The interim use period is less than 24 months.
  3. Vehicle is of the same general type sold by the dealer (i.e., a dealer of automobiles and light trucks that purchases another automobile or light truck, regardless of the brand, can do so and have it qualify for interim use, but cannot buy a trailer home or a large truck of a type not otherwise sold by the dealer and then claim interim use).
  4. The vehicle is ultimately sold by the dealer.
  5. For dealers who also lease or rent vehicles similar to the type of vehicle for which the interim use is claimed, then the dealer’s annual lease/rental revenue for all such vehicles must be less than the annual sales revenue for such vehicles.
  6. If the vehicle is leased under a lease agreement for more than 30 days, then the lease agreement must contain a provision that if a buyer is found for the vehicle, then either (i) the lease may be terminated within 7 days, or (ii) the lessee will receive a comparable vehicle substituted by the dealer for the vehicle within 7 days.
Finally, if the vehicle is not automatically disqualified, but does not qualify under the safe harbor, then the Department of Revenue will use all applicable and available facts to determine if interim use applies. These factors include, but are not limited to: the retail sales history of such type of vehicles; inventory records; advertising on the vehicle and at the location of the vehicle; manufacturer’s contract terms, conditions, discounts and rebates; length and location of use or lease prior to sale; whether depreciation is taken under IRC Section 167; ownership and control documents; and if leased, whether the lease contract provisions provide that the vehicle is subject to recall, substitution allowance, and sale during the lease period.

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I spot delivered a car to a customer but I cannot obtain financing for him. What do I do if the customer refuses to return my vehicle or returns it with excess wear and tear or damage?

If a customer refuses to return the vehicle, the dealer may sue for replevin and/or damages. However, the dealer does not normally have the right to repossess the vehicle at this time. Repossession is an extraordinary remedy which may be exercised by a dealer only when he has a security interest in the vehicle and there is a default. Inasmuch as the security interest normally won’t arise until execution of the retail installment contract, repossession is not available to dealers in these instances.
 
Oftentimes dealers use riders to the Retail Installment Contracts with language that provides that the buyer shall return the automobile and that the seller shall return to the buyer all deposits less the value of any damage done to the vehicle. However, the Illinois Attorney General has issued an opinion that such language is in violation of Section 2C of the Illinois Consumer Fraud and Deceptive Business Practices Act which provides in relevant part: "If the furnishing of merchandise … is conditioned upon the consumers … having a credit rating acceptable to the seller and the seller rejects the credit application of that consumer, the seller must return to the consumer any down payment … made on the purchase order or contract and may not retain any part thereof. The retention by the seller of part or all of the down payment … is an unlawful practice within the meaning of the Act."
 

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Does prior use need to be disclosed on the sale of a used vehicle?

A recent Illinois appellate case indicates that a selling dealer has an affirmative obligation to disclose prior use of a used vehicle, specifically if the vehicle was used in fleet or rental operations. Moreover, this obligation is not limited to only the previous owner’s use. It appears that a good method of meeting this duty imposed by the courts would be to provide a customer with a complete vehicle history at the time of sale, using one of the well known services to accomplish this. This information should be made available to the customer prior to his executing the closing documents; the dealer should have the customer sign an acknowledgement that he has provided this information prior to the sale and should retain that acknowledgement in the dealer file.

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My customer has informed me that he is “revoking acceptance” of the new car that he purchased. What does this mean and how can I contest it?

Under Section 2-608 of the Uniform Commercial Code, revocation of acceptance is provided as an extraordinary remedy to a car buyer. The remedy is available only when the product’s non-conformity substantially impairs the product value to the buyer. While "substantially impairs" is an undefined term, the courts are given wide discretion in this area. The issue is to be judged from the perspective of the buyer, and might well include consideration of diminished value, as well as market value. The UCC clearly provides that revocation must be taken within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in the condition of the goods which is not caused by their own defects. It is possible to contest revocation on the theory that although the condition of the car may not have changed much in the physical sense, its value on the marketplace will already have declined appreciably since it is a secondhand car. However, if a buyer is successful in revoking acceptance, he is entitled to have refunded the entire retail price plus perceived monetary damages.

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May I do a direct mail campaign wherein a coupon is offered to further discount a vehicle for sale?

No. This offer would be in violation of two Illinois provisions. The first, Section 475.530 of the Illinois Administrative Rules on Motor Vehicle Advertising, prohibits cash rebates, including, without limitation, a payment or an offset to a consumer or a payment to a dealer or a third party on behalf of the consumer on the condition that the consumer purchase or lease a motor vehicle, unless it is funded solely by the manufacturer pursuant to a manufacturer’s rebate program. Additionally, the Illinois Consumer Fraud and Deceptive Business Practices Act regulates "coupons." It prohibits the use of any coupon offered in connection with a retail sale where the price is arrived at through bargaining or negotiation.

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May I send out a direct mail piece targeting customers who have filed for bankruptcy?

This issue is covered by the Loan Advertising to Bankrupts Act. That Act provides that no person engaged in the business of making loans or selling property or services under installment contracts may include in any solicitation of or advertisement for such business any language stating or implying that a loan or extension of credit will be made to a person who has been adjudged a bankrupt. Accordingly, a dealer should avoid the use of the words "bankrupt," "bankruptcy," and the like. It is permissible to imply that credit will be made consumers who have "bad credit" or the like. Fines for violating this provision can amount to up to $1,000 for each person the advertisement reaches

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I am a Cadillac dealer. My buddy, who is the neighborhood Chevrolet Dealer, wants to purchase a Cadillac from me for his personal use. He provides me with a copy of his resale certificate and asks that I not charge retailers occupation tax/use tax on the transaction. Can I be held liable?

Yes. In Illinois, sales of tangible personal property for resale are exempt from tax. However, in this instance, this is a sale for use rather than for resale. Upon audit, the Department of Revenue would deny a resale exemption because the Chevrolet dealer does not have a franchise to sell new Cadillacs, but may only sell that car as a used vehicle. Personal use takes place prior to that sale, and accordingly the transaction is a sale for use rather than a sale for resale, and subject to ROT tax. When the vehicle is sold "used" by the Chevrolet dealer, ROT tax must be charged again predicated upon that sales price. The exception to this is if the vehicle qualifies for the interim use exemption from sales taxes.

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How far back may the manufacturer audit warranty claims or other incentive and reimbursement programs?

The Illinois Motor Vehicle Franchise Act provides that the manufacturer shall have the right to require documentation for warranty claims and to audit such claims within a one year period from the date the claim was paid or credit issued by the manufacturer. With regard to other incentive and reimbursement programs, the manufacturer has the right to audit such claims within an 12 month period after the date of the transactions that are subject to audit. Notwithstanding the above, the manufacturer retains the right to charge back any fraudulent claim if he establishes in a court of competent jurisdiction in this State that the claim is fraudulent.

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What amount of damage must be disclosed on a new or used vehicle?

On a new vehicle, the Illinois Motor Vehicle Franchise Act, as amended January 1, 2003, provides that a dealer must disclose in writing any damage of which he has actual knowledge, incurred between the end of the manufacturing process and the time of delivery, which exceeds 6% of the MSRP of the vehicle, excluding damage to glass, tires, bumpers, video and telephonic components, and in dash audio equipment, if said items were replaced with OEM equipment. With regard to the sale of a used vehicle, no Illinois Statute applies. Accordingly, the theory of common law misrepresentation would provide for dealer liability for an intentional misrepresentation of a material fact relied upon by the customer to his detriment. In this context, intentional means the dealer "knew or should have known" of the damage. The definition of "material" is left to the courts, but the rule of thumb is that it is material if the purchaser would have made a different purchase decision had he had knowledge of the damage.

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How far away must a relocated or new franchise be from an existing franchise of the same line make?

The Illinois Motor Vehicle Franchise Act provides that the manufacturer may not grant an additional franchise in the relevant market area of an existing franchise of the same line make or relocate an existing motor vehicle dealership within or into the relevant market area of an existing franchise of the same line make without a showing of good cause. The appointment of a successor motor vehicle dealer is prohibited from granting an additional franchise in the relevant market area, which is defined as an area within ten miles from the principal location of the dealership in a county of more than 300,000 persons or the area of responsibility as defined in the franchise agreement, whichever is greater, absent a showing of good cause. With regard to both a proposed relocation or grant of additional franchise, the manufacturer may attempt to show, and has the burden to establish, that good cause exists. The relocation or granting of the new franchise may not take place before the hearing process is concluded pursuant to the Franchise Act. A determination whether good cause exists is made by the Motor Vehicle Review Board pursuant to Subsection (c) of Section 12 of the Franchise Act.

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What does the FTC used car rule generally provide?

The used car rule, which became effective in 1985, requires a dealer to post a window sticker, called the Buyer’s Guide, on every used car or light truck offered for sale. The Buyer’s Guide must be in the exact format required by the rule and must be filled in according to the directions. In addition, the Buyer’s Guide, or a copy, must be provided to the purchaser at the time of sale, and the information contained therein must be incorporated into the Contract for Sale. Any dealer who offers six or more used vehicles for sale in twelve months is covered by this rule. However, sales to other dealers are excluded. Demonstrators are specifically covered. You should further note that if a used car transaction is conducted in Spanish, a Spanish language version of the Buyer’s Guide must be provided to the consumer. Finally, if your dealership enters into a service contract with a consumer either at the time of sale or within 90 days thereafter, federal law prohibits you from disclaiming or modifying any implied warranty to the consumer.

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May I obtain a consumer’s credit report without written permission?

Yes. The dealer may always obtain a credit report if the dealer has signed permission from the consumer. However, the FTC has recently interpreted the revised Fair Credit Reporting Act to provide for a two part test for obtaining a consumer’s credit report without a signature. Those two parts are:
  1. 1. The consumer clearly understands that he or she is initiating the purchase or lease of a vehicle; and
  2. 2. The seller has a legitimate business need for the consumer report to complete the transaction.
Accordingly, a dealer may not obtain a credit report without written permission when a consumer is requesting only a test drive or asking questions about prices or financing, or if it is solely for the purpose of negotiating with a customer.
There are inherent risks in taking credit applications over the phone. Penalties can run to $2,500 per violation. When in doubt, written permission is always recommended, and such permission should be retained by dealers for three years.

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My customer purchased a vehicle, and executed all the paperwork. Now, two days later, he has returned the vehicle to my dealership and claimed that he is rescinding the sale under the Federal Trade Commission’s “Cooling-Off Rule.” Can he do this?

No. The Cooling-Off Rule, which provides three days to cancel purchases of $25 or more, applies to sales at the buyer’s home, workplace, or dormitory, or at facilities rented by the seller on a temporary or short-term basis, such as hotel or motel rooms, convention centers, fair grounds, and restaurants. It applies even when the purchaser invites the salesperson into his home. However, it does not apply to sales made on the premises of the dealership. It further specifically exempts sales of automobiles, vans, trucks or motor vehicles at auctions, tents sales or other temporary places of business, provided that the seller is a seller of vehicles with a permanent place of business.

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May I advertise a price for a vehicle wherein all rebates have been deducted, including a “loyalty” rebate that only applies to current owners of my manufacturer’s vehicles?

No. A "loyalty" rebate, like a "college graduate," "Farm Bureau," or "finance company" rebate is a "limited rebate" under the terms of the Illinois Administrative Rules on Motor Vehicle Advertising, inasmuch as such rebates are not generally available to every consumer seeking to purchase or lease a motor vehicle. As such, it is a violation of Section 475.530 of those Rules to advertise a price or amount of an installment payment in which limited rebates have been deducted, or to advertise a total amount of rebate if a portion of the total consists of a limited rebate.

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May I offer an “Internet special” where a specific vehicle or vehicles from my inventory are available at a lower price for a consumer who has logged onto my website and printed out a discount coupon?

No. Any advertised price has to be available to all purchasers, and cannot be limited to only those who have logged onto the Internet. Additionally, use of a coupon on an Internet site would similarly be in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act provision that prohibits the use of any coupons offered in connection with a retail sale where the price is arrived at through bargaining or negotiation. consumer seeking to purchase or lease a motor vehicle. As such, it is a violation of Section 475.530 of those Rules to advertise a price or amount of an installment payment in which limited rebates have been deducted, or to advertise a total amount of rebate if a portion of the total consists of a limited rebate.

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Is it ok/legal to write on the face of a buyers guide, "see (salesman name for more information?"

It is OK to write that, but not at the expense of completing all the necessary information. The guide itself states "Spoken promises are difficult to enforce. Ask the dealer to put all promises in writing." The guide is a declaration of who will be responsible for paying any repair costs.

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If Il dealer leases vehicle to Indiana or Michigan customer with a monthly use tax on contract do we charge Illinois tax ?

All leases to out-of-state lease customers are tax exempt in Illinois. Even an out-of-state customer who would be taxed in a purchase transaction is not taxed in a lease transaction. Note: Your agreement with your manufacturer or lender may require you to collect the tax for an out-of-state customer’s home state before funding the deal. That is a matter strictly between you and your manufacturer and/or your lender. This is exactly the same way leases to out-of-state customers were treated in 2014 and earlier.

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With regard to the FCRA motor vehicle advertising does Illinois have any special provisions that are not in the Federal Law?

Illinois cannot do anything to lessen the implications of the Fair Credit Reporting Act, and neither does it impose anything on top of the federal law.

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What is the percentage and maximum a dealer can charge for shop supplies? Can we just charge a flat fee per RO?

As for the shop supplies charge, that has been labeled as a rag fee or "other extras" by some dealers. There really is no statutory limit to what the dealer can impose, as long as the fee can be justified. That means that if the dealer pays $200 for the oil he uses to service 50 customers' cars, the amount he collects from those 50 customers ought to come close to $200. You could say the fee is X% up to a maximum amount, say $35, so that someone who is getting a $5,000 engine job doesn't end up paying hundreds in shop fees.

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