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Talks continue on IDOR bid to tax dealer cash

November 17, 2010

Illinois Revenue Department representatives meet again Oct. 17 with the CATA to negotiate the department’s intention to subject dealer cash to sales tax.

 

The Oct. 17 meeting in Chicago follows a Sept. 27 Springfield gathering of the CATA, the Illinois Automobile Dealers Association and the revenue department, which has proposed extracting sales tax from certain rebates and dealer incentives. 

The Illinois Appellate Court ruled in 2004 that the state can pursue taxes on all the money receives tied to a sale—from the purchaser and the manufacturer. Holdback would not be taxed.

 

The CATA and the IADA concede that proceeds tied to a single unit could be taxable but that a distinction should exclude the money a dealer receives for meeting the retail objectives of a manufacturer’s program—for instance, earning several thousand dollars for selling a certain number of units.

 

A major obstacle to meet the revenue department proposal involves developing a method to accurately calculate taxes for stair-step programs and lump-sum payments. For example, a manufacturer pays cash incentives to a dealer who sells 15 units of one model in a month. How would tax be determined for a dealer who sells a 16th unit, only to see two deals later unravel?

 

The two dealer associations appealed to the revenue department to tax only guaranteed payments, not bonus payments earned for reaching a sales goal.

 

In the 2004 lawsuit, the manufacturer paid a specific sum to the dealer for every sale that qualified under a program. The court ruled that because each payment could be tied to a specific sale, it was part of the proceeds from the sale and subject to tax. The Revenue Department, in turn, applied the decision to dealer cash payments from manufacturers to dealers.

 

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