McLEAN, Va. –

The National Automobile Dealers Association offered some guidance to members in connection with the money they might receive from automakers to refurbish their showrooms and how those funds might impact their federal tax returns.

NADA acknowledged many dealers renovate their facilities as the result of factory-mandated image programs. The association maintained that these programs typically involve factory financial assistance to participating dealers 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 and are surprised to learn that IRS issuances to date on the topic, although informal and disagreed with by some dealer tax advisers, state that this amount is taxable income in the year it is earned,” NADA said.

The association emphasized that dealers should be aware, however, that there are several mechanisms available to them that may be able to reduce the impact of the current tax obligation associated with factory image program payments.

In a brief article titled, 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.

NADA said members are encouraged to share and discuss this article with their tax adviser. The document can be downloaded here.