Pub. 18 2019-2020 Issue 3

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 19 new jersey auto retailer W W W . N J C A R . O R G after September 27, 2017, and before January 1, 2023. The additional first-year depreciation deduction is allowed for new and used property. ( The first-year bonus depreciation deduction phases down, beginning with assets placed in service after December 31, 2022. ) Limitation on deduction of business interest • For tax years beginning after December 31, 2017, every business, regardless of its form, is generally subject to a dis- allowance of a deduction for net interest expense, in excess of 30% of the business's adjusted taxable income — with few exceptions. Entertainment expenses • Entertainment expenses such as expenses incurred for amusement, recreation, membership dues for a club ( i.e. golf ) are not deductible. These should be posted to separate accounts. A 50% deduction allowed for business meals is still applicable. Estate & Gift Tax Exemption • For estates of decedents gifted after December 31, 2017 and before January 1, 2026, the Act increases the estate and gift tax exemption from $5.6 million to $11.2 million ( $22.4 million for a married couple ). This increase provides an opportunity for dealership owners to review succession plans and the transferring of ownership interest to the next generation. Sales and Use Tax Laws Use Tax compliance in the automotive industry requires strong internal control policies and procedures, as well as a general understanding of the New Jersey State Sales and Use Tax laws. There are many complex scenarios, which deter- mine whether to apply a Sales and Use Tax. Sales Tax on Fixed Assets Review all additions to fixed assets and make sure that Sales Tax is charged on the items you purchased. Some vendors may not charge Sales Tax or charge a different rate. In this case, the Use Tax or differences should be included on your next Sales and Use Tax return filing. Repairs to Company Vehicles If a dealership performs a repair to a company vehicle, such as a parts van or a service shuttle van, then the cost of the part(s) used in the repair is subject to Use Tax and payable by the dealer, provided the part(s) was purchased for resale. Mixed Use Vehicles Monthly Use Tax Any vehicle that is held in a dealership’s inventory for resale and is used by the dealer, or provided to an employee for personal use, is subject to a monthly Use Tax. A monthly Use Tax is calculated by multiplying the dealership cost of the vehicle by 1% and applying the Sales Tax rate in effect in the taxing jurisdiction where the dealership is located. It is critical that dealership personnel properly maintain the records for any “mixed use” vehicle, or state and local Use Tax will be due on the total cost of the vehicle to the dealer, with interest and penalties ( if applicable ) due from the date of first use by the dealer. Out-Of-State Purchases Dealerships purchasing tangible personal property such as computers, office supplies, etc. from out-of-state vendors should verify that the vendor charged the correct Sales Tax on the purchase. Vendors are not always required to collect Sales Tax from out-of-state customers, based on regulations specific to their state. If the dealership did not pay the Sales Tax on the purchase, then the dealership is required to remit the Use Tax to New Jersey with their monthly tax payment. The provisions of the Act provide many opportunities and some pitfalls. More than ever, owners of automobile dealerships need to consult their industry-specialized tax advisers to understand both the business and personal implications of the new tax laws, and to develop a system of checks and balances to identify and address potential tax issues. Management should also schedule an external review by their CPA firm. Wilfredo Fernandez, CPA is a partner and co-leader of Citrin Cooperman’s Automotive Dealerships Services practice. He works closely with clients on dealership acquisitions, negotiations, manufacturing documentation, and has developed strategies for year-end and ongoing tax issues. He can be reached at wfernandez@citinrcooperman.com. Any vehicle that is held in a dealership’s inventory for resale and is used by the dealer, or provided to an employee for personal use, is subject to a monthly Use Tax.