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Legislature Approves Reworked Strickland State Budget with Key OADA Changes

Important Victories for Dealers: Vendor Discount Restored, Non-Resident Sales Tax Proposal Impact Reduced, DOC Fee Authority Clarified

Dealers Encouraged to Thank Ohio Senate President Bill Harris & Ohio House Speaker Jon Husted

On June 30^th Governor Ted Strickland signed into law the state budget bill – Amended Substitute House Bill 119 – which was just recently approved by the legislature and will fund state operations over the next two fiscal years.  The budget version the legislature sent Governor Strickland for his signature differed sharply from the Governor’s original proposal in the following important areas for dealers:

Restoration of the vendor discount:  The Governor had originally proposed to limit the vendor discount for dealers at $30 per month as a way to free up additional revenue for the State.  At our urging the legislature rejected the Governor’s proposal and instead retained the current vendor discount, which stands at 0.75% with no cap.  To understand the impact on your bottom line, ask your CFO to compare your yearly vendor discount (for motor vehicle and parts/service sales tax collections) versus the Governor’s proposed $30/month cap.

Non-Resident Sales Tax Proposal:  The Governor originally proposed to tax residents from nearly all fifty states on motor vehicle purchases made in Ohio as a way to generate additional revenue for the State.  OADA worked with legislators to limit the proposal to only taxing residents from states that tax Ohioans on vehicle purchases.  Of our neighboring states, only Michigan and Indiana tax Ohioans.  Hence, residents from Michigan and Indiana will be our only neighbors subject to tax under this proposal.  KY, WV & PA residents will continue to be exempt.  There are only a handful of other states that will be in play.

OADA also worked with legislators to amend the proposal to charge non-residents subject to tax the lesser of either the tax due in Ohio or the tax due in the resident’s home state when comparing certain factors (rate, trade-in credits, state maximum tax allowed). This addresses our concern that residents from states that have lower tax rates or a used-for-used trade-in credit would have no incentive to purchase vehicles in Ohio .  In addition, residents from all states subject to tax under this proposal will receive credit for state tax paid in Ohio .

The effective date of the non-resident proposal is August 1, 2007.  OADA is working with the Ohio Department of Taxation regarding implementation direction for dealers.  Dealers will continue to obtain an Ohio non-resident title for their customers at the county clerk of courts.  However, please note until the State can re-program its accounting system, dealers will be required to remit non-resident motor vehicle sales tax directly to the State on a one-time monthly basis using the Ohio Business Gateway. OADA will have specific direction for dealers in the very near future.

DOC Fee Authority Clarification:  There are ongoing investigations by the Ohio Attorney General’s Consumer Protection Division regarding the ability of dealers to charge a doc fee in non-retail installment sales transactions (leases, cash deals, etc.).  In response, OADA worked with the legislature to insert clarification language in the state budget that codifies the ability for dealers to charge a doc fee in all motor vehicle sales transactions, which we believe reflects industry practice allowed under law for decades that is intended to help dealers offset the costs associated with the numerous federal and state regulatory requirements associated with the sale or lease of a motor vehicle.

Under the clarified law, which will be effective in 91 days after the bill is filed with the Secretary of State’s Office, dealers may charge a doc fee for all transactions in an amount not to exceed $250 OR 10% of the contract (whichever is less), excluding tax, title, registration fees and any negative equity adjustment.  PLEASE NOTE THIS IMPORTANT CHANCE ON VEHICLES LESS THAN $2,500.00. For example, for a $30,000 vehicle purchase dealers will be able to charge no more than $250.  For a $2,000 vehicle purchase, dealers may charge no more than $200.  OADA will have further direction for dealers regarding this clarification change in the future along with notification of the official effective date of change when it is made available.   

Other Provisions:  In addition to the key issues discussed above, OADA worked with legislators during the budget debate on a host of other issues important to our industry, including the following:

• No increase in the commercial activity tax (CAT) rate

• Phase-out of the personal property tax and corporate franchise tax remains on schedule

• Reduction of personal income tax rates remains on schedule

• Sales tax trade-in credit on new motor vehicles remains intact

• No increase in motor vehicle title fee

• No increase in dealer license fee

Obviously OADA is very pleased with the reception we received from legislators on all of these issues, particularly the efforts of Ohio Senate President Bill Harris and Ohio House Speaker Jon Husted.  OADA encourages all dealers to contact them both Senator Harris and Speaker Husted at 800-282-0253 and thank them for their support.

Lastly, OADA cannot emphasize enough how important dealer grassroots efforts and Dealers Investment Group (DIG) participation are to the success of our legislative efforts.  OADA thanks those dealers who have participated in both programs in the past and encourages all dealers who haven’t yet participated to do so now.  Dealers may contact Joe Cannon at OADA at (800) 686-9100 to find out how you can get involved.