Special To Our Automobile Dealer Friends

Fall 2006 Edition

MANUFACTURER SALES AND SERVICE CHARGEBACKS

By P. Devan Culbreth

Automobile dealers have, in recent years, been subjected to an ever-increasing number of service and incentives audits from manufacturers attempting to shift costs back to dealers. With this fact in mind, dealers should be aware of the various laws protecting North Carolina Automobile Dealers in these situations and the informal appeal process that is often an attractive alternative to the high-cost options of filing a formal appeal with the Commissioner of Motor Vehicles or utilizing a manufacturer's mediation procedure.

Laws Protectlng NC Car Dealers [NCGS §2O·305.1]:

1. Schedule of Compensation: Manufacturers and distributors must provide dealers with a schedule of compensation to be paid for parts, work and service in connection with warranty service, as well as the time allowances for the performance of such work and service. This schedule of compensation must include reasonable compensation for diagnostic work and associated administrative requirements as well as repair service and labor.
    
2. Compensation Paid: The compensation paid must be reasonable and may NOT be less than the dealer's current retail labor rate and/or the amount charged to retail customers for nonwarranty work of like kind, provided that this amount is competitive with other franchised dealers in the dealer's market.
    
3. Warranty and Service Audits: "Any audit for warranty parts or service compensation shall only be for the 12-month period immediately following the date of the payment of the claim by the manufacturer".
    
4. Sales Incentive, Service Incentive and Rebate Audits: Any audit for these incentives "shall only be for the 12-month period immediately following the date of the termination of the ... incentive compensation program."
    
5. Timely Payment: All claims made by dealers shall be paid by the manufacturer within 30 days of receipt of claim from the dealers. Any claim not specifically disapproved by the manufacturer, in writing, within 30 days after receipt shall be considered approved and payment is due immediately.
    
6. Good Faith Attempt: A manufacturer or distributor shall not deny a claim or reduce the amount to be reimbursed to the dealer as long as the dealer has provided reasonably sufficient documentation that the dealer (a) made a good faith attempt to perform the work in compliance with the written policies and procedures of the manufacturer; and (b) actually performed the work.
    
7. Fraudulent Claims: A manufacturer may not deny a motor vehicle dealer's claim unless it can be shown that the claim was false or fraudulent or that the dealer failed to reasonably substantiate the claim either in accordance with the manufacturer's written procedures or by other reasonable means.
   

Low-Cost Option lor Fighting Chargebacks: [NCGS §2O·301.1]:

Informal Appeals Procedure: Any franchised new motor vehicle dealer wishing to challenge a chargehack in an amount less than or equal to $10,000 may, prior to filing a formal petition before the Commissioner or a civil action in any court of competent jurisdiction, request and obtain a mediated settlement conference. This procedure is a dealer's best method of fighting the chargeback while minimizing legal fees and attorney involvement.

May taxpayer deduct "travel expenses" -
TWO OR MORE GEOGRAPHICALLY SEPARATE BUSINESSES

By F. Stephen Glass

Generally speaking, a taxpayer engaged in two or more businesses operated in geographically separate locations can deduct travel expenses incurred while away from the location of the principal business. Thus, expenses incurred while conducting business at the secondary location are deductible. To determine which is the principal business location, the courts have considered (1) the amount of time spent at each place, (2) the proportion of the taxpayer's income earned in each location, (3) the degree of activity engaged in by the taxpayer at each location, (4) where the taxpayer maintains his permanent residence, and (5) whether employment at one location is temporary. [Marvin Ziporyn, TC Memo 1997-151 (1997)]

INDIVIDUAL WAS "RESPONSIBLE PERSON" AND LIABLE FOR UNPAID EMPLOYMENT TAXES PENALTY

By F. Stephen Glass

The chairperson of a corporation's board of directors and the corporation's largest shareholder was a "responsible person" for purposes of the corporation's unpaid employment taxes and was liable for the recovery penalty. The chairperson had check-signing authority as a signatory on the corporation's account, regardless of the facts that he only exercised that authority once and did not have physical access to the corporation's checkbook. The IRS found that the chairperson satisfied the "willfulness" requirement because he knew of the corporation's unpaid taxes and made no effort to urge other members of the board of directors to pay the corporation's employment taxes to the IRS rather than pay the bills of other creditors. This IRS continues to actively pursue "responsible persons". [T.C. Turner, 2006·1 USTC 50:238]

About our authors:

P. Devan Culbreth is an associate at Johnson, Hearn, Vinegar, Gee & Glass, PLLC. She is a graduate of Wake Forest University, cum laude, and of its law school. She has a Masters Degree in Psychology. Her practice concentrates on estate planning, business and corporate law, and automobile dealer legal transactions.

F. Stephen Glass is the author of numerous publications on business and business entities as well as estate planning. He is a frequent presenter for the National Business Institute. His practice is concentrated in the areas of business and corporate law, business succession planning and estate planning. He serves on the Cary board of Capital Bank. Mr. Glass has earned the highest peer-review rating for professional excellence and ethical standards by the national publication Martindale Hubbell. He serves on the American Bar Association Business Law Committee on Corporate Governance.

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