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Suit challenges taxation on employee vehicle purchases

November 23, 2010
A Chrysler dealer, with legal backing from DaimlerChrysler Corporation, won a court ruling which exempts manufacturer rebates on employee purchases from tax. The Illinois Revenue Department is expected to appeal the decision. The department's policy is to treat payments from a manufacturer to a dealer in connection with an employee purchase as part of the "gross receipts" paid for the vehicle by the customer and therefore subject to retailers occupation tax. The court decision overturns that policy and indicates that payment by DaimlerChrysler of 6 percent of the purchase price plus $75 (pursuant to the DaimlerChrysler program) is not subject to taxation. Dennis O'Keefe, the CATA's legal counsel, cautioned dealers from changing their practices of charging the tax until a higher court rules on the matter. Nevertheless, O'Keefe said: "This win should be considered a positive step for both the dealer and for the employee purchasing the vehicle pursuant to the DaimlerChrysler program. Furthermore, while this ruling applies only to the DaimlerChrysler program, it is likely that, should it be upheld in a higher court, agreement might be had with the Department of Revenue on a broader application to similar situations with other automobile manufacturers." During the appeal process, DaimlerChrysler indicated it would indemnify its dealers who do not pay tax on the manufacturer contributions.