NADA offers tax information for factory image payments
Dealers are often surprised to hear that the financial assistance they receive from the manufacturer for factory-mandated image programs is considered taxable income in the year it is earned. Hereês the background:
When dealers renovate their facilities to comply with factory image programs, they typically receive financial assistance to offset a portion of their investment. Dealers often assume they can reduce the cost basis of this investment by the amount of factory assistance received. But IRS issuances to date on the topic, although informal and at odds with by some dealer tax advisors, state that this amount is taxable income in the year it is earned.
Dealers should be aware, though, that several mechanisms are available that may reduce the impact of the current tax obligation associated with factory image program payments. In a brief report from NADA entitled, Tax Implications of Dealership Facility Image Upgrades, the dealer accounting firm Boyer/Ritter outlines these mechanisms and provides an example of how applying them may help a dealer to preserve a manageable cash flow. Dealers are encouraged to share and discuss this article with their tax advisors and can download a copy by clicking on the title above.Download Bulletin PDF