Watch: The Coronavirus Crisis: Steps Every Dealer Should Take Today

Date March 27, 2020
Categories
Dealership Industry Solutions Group hosted the webinar The Coronavirus Crisis: Steps Every Dealer Should Take Today. We received a great response from our attendees and wanted to share this valuable information with you. Below you can view the webinar and download the presentation materials. Download the Presentation

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Your Employees May be Stealing from Your Dealership

Date November 13, 2019
Categories
Article Authors
Clint Whitehair

Internal theft is a persistent problem for dealers. It is estimated that dealership employees are stealing the equivalent of $9 per employee per day, so a dealership with 100 employees is suffering a theft loss of $234,000 each year.

With the impact to dealers so high, what can you do to prevent and protect yourself from fraud? Listed below are a few internal controls that if implemented could help prevent theft.

New Department
• Perform frequent unannounced physical inventory counts
• Establish strict inspection procedures
• Allow no options or equipment to be removed without an internal repair order

Used Department
• Maintain an approved list of wholesalers and do business only with those approved
• Verify dealer licenses and sales tax permits
• Review all wholesale transactions that result in a loss and retail transactions with low grosses

Parts Department
• All parts and repair orders need to be computer generated with changes crossed off and initialed by the manager. Then the ticket should be properly voided with the corrected ticket referencing the original document.
• Establish a clear policy for discounted purchases by customers and employees
• Frequently check shipments of parts in company vehicles

Service Department
• Service work should be spot checked to ensure parts charged are being used in the repair order
• During month end procedures, all WIP should be computed and inventoried and all repair orders should be listed
• Ensure no unit leaves the shop without proper payment arrangements being made

Other Items
• Department managers must sign off on payrolls approving the individual and amount
• Bank statements should be delivered to the dealer unopened and should be reviewed for unusual items and cancelled checks. It should also be reconciled by an individual with no access to cash.
• Further, special procedures should be developed to control electronic banking transactions.
• Make sure all clearing accounts are current (payroll tax withholdings, vehicle payoffs)

Fraud can have devastating effects on profits. If are not protecting yourself against fraud, you need to get there. You do not want to be the dealer who has fraud resulting in a $200,000 hit to the bottom line.

Clint Whitehair can be reached by email at CWhitehair@hbkcpa.com or by phone at 317-886-1624.To discuss ways to implement a system of Internal Controls to avoid internal fraud at your dealership or for any other inquiries, contact a member of the HBK DIG at 330-758-8613.

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Indiana Dept of Rev Changes Tax Policy on Doc Fees

Date April 2, 2019

The Indiana Department of Revenue has taken a new position regarding whether documentation fees are subject to sales tax. It is effective April 2, 2019.

As always, fees for services performed after the transfer of a vehicle or trailer are not considered part of the sales price; therefore, they are NOT subject to sales tax. (For this purpose, the transfer takes place upon physical delivery as a purchaser takes possession and control of the property, regardless of whether the title has yet been transferred.) The dealer must maintain adequate records noting all services pertaining to the fees charged. The records must also detail any services performed after the transfer in order to be exempted from sales tax. Fees charged for services performed prior to a customer taking physical possession of the vehicle or trailer ARE subject to sales tax. Doc fees have historically been treated as a service NOT subject to sales tax. This is no longer the case and the change stems from the state allowing dealers to charge a “convenience fee” relative to the titling services they offer.

As a reminder, the General Assembly added IC 9-14.13-3 effective July 1, 2016, which established a separate “convenience fee” allowing dealers to charge for services that, in the past, had been excluded from the retail unitary transaction and were reflected by the documentation fee. As such, fees qualifying as separate “convenience fees” are NOT subject to sales tax. While dealers may still charge a separate documentation fee [in addition to the convenience fee], any other services attributable to documentation fees will be considered seller service charges, which are necessary for sale completion as per IC 6-2.5-1-5(a)(3) and these WILL be subject to sales tax.

The bottom line: effective April 2, 2019, a dealer’s Documentation Fees are most likely subject to sales tax.

If you have questions on the Information Bulletin #28S policy changes, please contact Rex Collins at 317.504.7900 or RCollins@hbkcpa.com

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Under the New Tax Act: Can Dealers Eliminate Their Related Finance Companies?

Date June 11, 2018
Categories

We are receiving a number of questions from dealers who have heard that the Tax Cuts and Jobs Act of 2017 (The Act) contains changes to tax law which will result in “Buy Here Pay Here” or BHPH dealers no longer needing to use a related finance company (RFC). The Act, the most comprehensive tax legislation since the Reagan era, is very complicated and we expect a significant number of regulations implementing the new law to be issued in the coming months and years.

One of the items contained in The Act is an expansion of the use of the cash method of accounting for businesses. Taxpayers using the cash method of accounting recognize income when cash is received and deduct expenses when paid. In general, the accrual method recognizes revenue when it is earned and expenses as incurred regardless of when payment for those items are received or paid.

Under prior law, there have been limitations on using the cash method of accounting. One of these limitations impacts taxpayers who maintain inventories. Generally, taxpayers with inventories are required to use the accrual method of accounting. Since dealers typically maintain inventories, they are not permitted to use the cash method. This results in dealers being required to recognize all of their sales revenue as income, forcing them to pay income taxes long before the customer has paid for the vehicle. Using an often-overlooked section of the tax code, dealers created RFCs to help alleviate the tax impact of this issue. The use of an RFC, because of the discounts taken, permits dealers to spread the recognition of taxable income over the life of the loan; thereby, more closely matching the tax burden to the cash flow. If dealers could use the cash method, the creation of the RFC would have been unnecessary.

The Act has expanded the use of the cash method so that businesses with gross receipts of less than $25 million dollars may be able to file for an election to use the cash method. This sounds like good news for many BHPH dealers, right? Not necessarily.

The current tax rules relating to the use of the cash method contain a snag for BHPH dealers that they may not have considered. These rules create “cash equivalency.” Under this definition, a dealer who receives an unconditional, assignable promise to pay from the customer, must recognize this as a cash equivalent; therefore, making the entire sale, once again, subject to income tax. The courts and the IRS have both reinforced this cash equivalency theory.

The Bottom Line: The expansion of the use of the cash method under the Act may not solve BHPH dealers’ problems. Accordingly, BHPH dealers must continue the use of RFCs until the IRS issues guidance changing the current rules or dealers risk seeing a significant increase in their tax bills. Contact Rex Collins with any questions you may have about the Tax Act and how it may impact your business.

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