Document Preparation Fees: Be Sure Your Charges Recognize Your State Statute

As part of the sale of a vehicle or a large piece of equipment, a document preparation fee may seem a small thing. But for many dealers it’s causing big headaches. States have legislated rules governing document preparation fees, and not adhering to the letter and intent of such legislation has resulted in charges against dealers for violations as serious as consumer fraud.

What you can charge varies from state to state. Many states have statutory limits on charges. Others have worked out unofficial agreements on maximum amounts. Others have no guidance at all. And there are no federal laws specific to what dealers can or can’t charge for document preparation. However, there are guidelines for reasonability and all dealers need to be sure that the documentation charges they assess are neither excessive nor inappropriate.

Here are a few general guidelines that reflect state regulations:

  • The fee should reflect what is actually required in the preparation of those documents, that is, direct expenses, like the cost of the time spent by the individual doing the work.
  • Do not include any calculations for overhead, such as utilities, rent, etc.
  • You must disclose the fee in advance of completion of the sale. Do it and present it in writing. Some states require the calculation to be included on the buyer’s order and others forbid it.
  • The fee must result from a negotiation between you and the buyer. That means no set fees, but something reasonable that the two of you agree on. In most states, that forbids the use or pre-printed forms.
  • The fee cannot include preparation of any documents related to the extension of credit. This is critical because doing so could put you in violation of federal truth-in-lending laws.

What will be seen as a reasonable fee? Again this is a moving target, different from state to state. In Indiana, for example, the statue provides for a maximum document preparation fee of $99.50, but the attorney general’s office now considers fees reasonable if they don’t exceed $200. Generally, the maximums allowable grow from year to year, but the guiding principle remains the same: the actual costs you incur for the services you provide.

You need to be cautious not to violate your state rules governing document preparation fees. States have assessed substantial penalties for violation. A pattern of excessive fees could be cause for a class action suit. In fact, some consumer groups have been pressing state attorneys general to get tougher in enforcing these statutes, which has resulted in an uptick of investigations. So revisit your document preparation fee policies and procedures and ensure that you are in sync with your state’s statutes.

About the Author(s)
Rex is a Principal of HBK CPAs & Consultants and directs the firm’s Dealership Group. He has worked extensively in the dealership industry since 1984 as a department manager, a general manager and an owner, as well as providing tax, accounting and operational consulting services exclusively to dealers as an independent CPA. This experience includes working closely with hundreds of dealers from coast-to-coast since 1987 on creative tax planning and financial statements issues. He provides clients with a wide range of transaction work services, and consults for them in specialty areas such as operations, government regulatory compliance, valuations and M&A feasibility studies. Rex is active in many professional associations. He is the current Chairman of the BDO Dealership Industry Group, contributes articles and commentary to dealership industry publications, is frequently called upon to speak to industry associations and conferences, provides expert testimony, and is regularly quoted by industry and the general media.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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