Blog

Closing a Dealership Requires Planning

By Michael W. Dunagan
TIADA General Counsel

Much time and effort go into training folks to become independent car dealers. Programs like How to Become An Independent Dealer and various dealer “boot camp” sessions are readily available for prospective dealers. But now that 2018 is coming to a close, and many dealers may be contemplating closing down their operations, it might be useful to consider some issues that crop up when the doors close for the final time. Some dealers, especially those in the buy-here, pay-here world, have been blind-sided by regulatory agencies that don't necessarily believe that shutting down a dealership is the end of the story.  

Vehicle Inventory Tax reporting and payment, for instance, carries on even after sales stop. VIT is the methodology by which the value of a dealer's inventory is calculated for purposes of assessing local ad valorem property tax. Because this years' tax is based on last years' sales, there is always a one-year “tail” on taxes due. That is, tax continues in the year after sales cease. Proper planning is thus necessary to prepare for the final bill.

OCCC Motor Vehicle Sales Finance License. For the BHPH dealer who wants to continue to service and collect receivables after closing down sales operations, it is necessary to keep the Seller Finance License from the Office of Consumer Credit Commissioner current until all collections have been made. A license is required for “servicing” dealer paper even if no new sales are made.

Deferred Sales Tax. If a dealer chooses to sell all receivables upon closing down the business, the OCCC license will not be required. However, the sale of receivables that are set up with deferred sales tax will result in the acceleration of sales tax upon assignment. The State Comptroller will expect all unpaid sales tax (that is, the total amount of sales tax on the sales price, less credits for deferred sales tax payments) to be paid promptly after the transfer. The acceleration of sales tax should thus be taken into account when negotiating terms of sale of receivables.

Closing down a car business involves more than just turning off the lights and locking the doors. Proper planning is essential in avoiding surprises. 

Comments

 
By: Cheri Childress
On: 11/08/2018 12:02:42
Exactly what I was looking for. Looking to close down after 60yrs.

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