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Navigating new straits of taxable dealer cash

November 17, 2010

Calls to the CATA have subsided about the July 1 change by the Illinois Revenue Department to the treatment of dealer cash, but a few questions linger.

 

Most dealer cash programs are excluded from the revenue department’s policy change. The past two editions of this newsletter detailed that manufacturer incentive payments are taxable only if they are conditioned on the retail sale of a vehicle and not upon the sale of any other vehicles.

 

Other dealer cash incentives—stair step payments, dealer hold-back, and marketing and facility payments, among others—are not taxable.

 

The revenue department was very explicit about including taxable dealer cash on Section 6, Line 1 of Form ST-556. Less explicit was any guidance about how to itemize that amount on the buyer’s contract, or how to navigate the conversation with customers about them paying tax on incentives that likely would be retained by the dealer.

 

Computer software usually is programmed to draw from various lines on the buyer’s contract to generate the sums on Form ST-556. But the revenue department offers no direction about whether to identify the incentive amount as a rebate or something else.

 

"It (taxable dealer cash) needs to be on the bill of sale," said Susie Lonzerotti, vehicle tax liaison for the Illinois Revenue Department. "But we can’t dictate where on the bill of sale that appears because they are all set up so differently."

 

As for soothing customers upset about paying the tax on dealer cash that they don’t get, a suggested tact is to say, "Yes, we are getting an extra $250 from the manufacturer to sell this vehicle, and that’s what enables us to sell it to you at the price we agreed to."

 

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