Employee Retention Tax Credit for Auto Dealerships
Marty Stewart
Founder, Chief Marketing Officer (CMO), Chief Strategy Officer (CSO) of Multiple Company Brands
The Employee Retention Credit (ERC) tax refund for car dealers, auto dealers, car dealerships, auto dealerships, and other automotive type businesses provides a valuable tax refund from the Internal Revenue Service (IRS).
Almost all car dealerships in every state qualify a portion of the eligibility period due to mandated state government, county, city, or municipality restrictions placed on automobile dealership locations during the COVID pandemic. Dealers were forced to close car showrooms, not go on test drives, limit business capacity indoors, reduce hours of operation, and had less new and used car inventory to sell due to the automaker semiconductor chip manufacturing shortages.
Even if a dealership revenue didn’t decline, or even if it increased, under the closure and partial shutdown rules, most car dealerships may still qualify for up to a $26,000 to $33,000 tax refund per employee on the dealership’s payroll in 2020 and 2021.?
How Most Car Dealerships Qualify for the Employee Retention Credit (ERC) Tax Refund
All car dealerships may be eligible to claim the employee retention tax credit in 2022, 2023, and even 2024, “if” they qualify any portion of time between March 13, 2020 to September 30, 2021 for car dealerships that were around prior to the COVID pandemic. For car dealerships and auto dealerships that were started or purchased after February 15, 2020, those car dealerships are eligible from the time their auto dealership opened until December 31, 2021. These types of car dealerships and auto dealers are also referred to as a recovery startup business, and qualify for the 4th quarter of 2021.
Two Key Ways Car Dealerships and Auto Retailing Businesses Can Qualify for the Employee Retention Tax Credit (ERTC)
Car dealerships only need to qualify a quarter or portion of time for the $26,000 employee retention tax credit in one of two potential ways.?
1. The first way a car dealer or auto dealership can qualify is if it experienced a full or partial shutdown due to COVID-19 government regulations or any other government-mandated shutdown or disruption of operations during specific periods in 2020 or 2021 due to the pandemic.
From the government mandated shutdown or start date of car dealership operation capacity restrictions or lack of new vehicle units to sell due to automobile manufacturers having supply chain disruptions, to the end date when those same restrictions were fully lifted, your auto dealership qualifies for the car dealership ERC credit and tax refund.
The pandemic led to the closure of semiconductor production facilities worldwide, resulting in a lack of automotive chips. This, in turn, caused significant delays and shortages in vehicle shipments to car dealers across the nation, leading to a surge in car prices. Dealers have continued to face vehicle shortages and supply chain problems throughout 2020, 2021, 2022, and 2023.
A car dealership did not have to be fully shut down to qualify. It could have been considered only partially shut down due to lack of vehicle units available to sell caused by automakers shutting down. State mandates caused dealerships to suspend operations, or limiting hours of operation and capacity. All of these issues clearly impacted most, if not all car dealerships and auto retailers nationwide, depending on the type of new or used car brands they sold.
2. Or, the second way a car dealership can qualify for the ERTC tax credit is if it has experienced a significant decline in gross receipts compared to one of two prior years (2019 versus 2020 or 2021). A decline in gross receipts is significant when the decline is more than 50% in 2020 as compared to the same quarter in 2019, or 20% in 2021 compared to the same quarter in 2019. In clear terms, you have to analyze a comparison of 2020 and 2021 of the same quarters with 2019.
If you are a car dealership partner or owner and paid wages to less than 100 employees in any quarter in 2020 (500 employees or less in 2021), those payroll gross wage numbers and salaries will be counted towards the ERC tax credit, regardless of whether they were full-time or part-time.
The rules get tricky if you paid more than 100 car dealership employees in any quarter in 2020, or paid more than 500 employees in any quarter in 2021.
ERC Warning for Auto Dealers: Many Accounting Professionals, CPA’s, Financial Planners, Bookkeepers, and Tax Preparers Are Wrongly Advising Their Car Dealership Clients They Do Not Qualify for the Employee Retention Credit
The unfortunate mistake for some car dealership owners, partners, and principals, many may have been given bad advice by their accountant, CPA, tax preparer, bookkeeper, financial planner, or other well-meaning tax professional.
The main reason this is occurring is their accounting, tax, or financial professional did not take the time to fully educate themselves on the complex and confusing employee retention credit program for themselves or their automotive clientele.
“Your car dealership didn’t have to be fully shut down to qualify. It could have been only partially shut down. And this is easy for many car dealerships to prove this, due to all the automaker supply chain issues and semiconductor chip shortages that severely limited dealers from getting new car inventory and units to sell. If your accounting, tax, legal, or financial professional told you that your auto dealership does not qualify, without first having done a thorough deep-dive analysis, they are completely wrong and do not fully understand the comprehensive current guidelines for the Employee Retention Credit (ERC) program,” said Marty Stewart, Chief Strategy Officer (CSO) with Disaster Loan Advisors (DLA).
How a Certified Public Accountant (CPA) Almost Cost Their Car Dealership Client a $1,300,000+ Employee Retention Tax Credit Refund
“We had a multi-location car dealership owner come to us and asked why their accountant told them they didn’t qualify and should not file for the employee retention credit tax refund. After doing a full deep-dive analysis, it was determined their accountant was absolutely incorrect. Their CPA would have cost their automotive client a properly calculated ERC refund worth over $1.3 million,” said Marty Stewart.
In 2020 and 2021, the car dealership received two Paycheck Protection Program (PPP) loans totaling over $1,200,000 that had been forgiven by the SBA. In prior IRS rulings, PPP loans disqualified a business from claiming the ERC credit. Great news is that has changed since then. With current ERC rules, car dealerships and auto dealerships that did receive PPP loans still may qualify, as long as the PPP loans are deducted properly from the ERC credit calculations.
From late March 2020, not due to a mandated closure, however, due to automaker disruptions, automotive chip shortages, supply chain issues, and other operation disruptions that lasted well into 2021, they were eligible to receive an Employee Retention Credit Tax Refund totaling $1,300,000!?
This broke down to $374,000+ in 2020 and an additional $944,000+ for 2021. That’s a total of $1,318,000+ in ERC credits. Those are actual IRS tax refund checks, one for each quarter that qualified. And this was after correctly subtracting out over $1,200,000 in PPP loans, and removing majority owners and family members.
“That is a substantial amount of money the car dealership, owners, and partners would have lost if they would have trusted the wrong advice from their accountant. Instead, they sought out Disaster Loan Advisors’ expert opinion and specialized help in fully understanding how to take advantage of the ERTC for their car dealership. Their ERC refund claim was correctly qualified and calculated by-the-book, exactly how the IRS designed the ERC program to be followed,” said Marty Stewart.
Are Car Dealerships and Auto Dealerships Able to Claim the Employee Retention Credit if They Received SBA Paycheck Protection Program (PPP) Loans?
In prior IRS rulings, companies were disqualified from claiming the ERC credit. Great news is that it has changed. With current ERC rules, car dealerships that did receive PPP loans still may qualify, as long as the PPP loans are deducted properly from the ERC credit calculations.
Will Car Dealers, Auto Dealers, and Car Dealerships Qualify for the Employee Retention Credit if They Didn’t Suffer a Large Financial Decline or Even Increased Revenue?
Yes they can, as the Gross Receipts Test (GRT) is only one of two ways to qualify a quarter. Most car dealerships experienced disruptions to their auto dealerships solely through automaker supply chain issues and automotive chip shortages that made their new car inventory almost non-existent at times, massively disrupting their car sales operation, which in turn, greatly affected their normal way of doing business, if it wasn’t for the pandemic.
Is There a Difference Between the Employee Retention Credit (ERC) and the Employee Retention Tax Credit (ERTC)?
Both the employee retention credit (ERC) and the employee retention tax credit (ERTC) are actually one in the same. The ERC or ERTC are actually the same program from the Internal Revenue Service (IRS) and the terms are used interchangeably.
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If a Car Dealership Was Closed, is it Still Eligible for the Employee Retention Credit?
Depending on circumstances, closed car dealerships or automotive businesses may be eligible for partners and owners to retroactively claim during the qualification period in 2020 and 2021. The employee retention credit is claimed by filing IRS Form 941-X which is amending quarterly payroll from the past. Car dealership owners and partners are able to go back and claim the ERC in certain circumstances, even though they closed or sold their dealership location.
Would Car Dealers or Car Dealership Partners Who Sold Their Automotive Business Qualify for the Employee Retention Credit?
Car dealerships that were sold during the eligibility period in 2020 and 2021, might also qualify, up until the date they were sold. Car dealership owners and partners are able to retroactively claim the ERC for their past auto dealerships under certain circumstances.
Car Dealerships Beware: Employee Retention Credit Companies Charging a Contingency Fee on Your ERC Tax Refund
Car dealerships, car dealers, and auto dealers are reporting receiving many calls and emails from companies claiming to be Employee Retention Credit experts. An overnight industry has been created around the Employee Retention Credit. Some ERC companies will have auto dealership owners and partners sign lengthy page agreements, will charge them no money upfront, and then wait to get paid once the business receives their ERC tax refund check. Sounds good in theory until owners and partners realize how much in excessive fees they really end up paying.
What many car dealership owners do not realize is that they are overpaying on an excessive scale. Some of these ERC fee levels may rival corporate level fee structures, or big company pricing. Yet, for many car dealers, they could be paying 5x to 25x more than they really need to.
Car dealership partners feel these percentage-based contingency fees are very expensive. There have been numerous instances of auto dealers being quoted a percentage of their estimated ERC Employee Retention Credit tax refund. Or, where the fee levels are so excessive, they fall in the range of 20% to 30% of the car dealership’s ERC tax refund.
For example, if a car dealership or auto dealership was qualified to receive a $1,000,000 Employee Retention Credit tax refund, and they engaged with a company charging them 30% (or fee equivalent) of their refund, this would be $300,000 the car dealership would be paying right off the top. This is a very excessive fee for the small amount of tax work required to process the refund.
IRS Rules Say Charging a Contingent Fee or Percentage % of a Tax Refund is Not Permissible
Even though many companies out there performing ERC services are charging a percentage of a client’s Employee Retention Credit refund, they are knowingly, or unknowingly, running afoul of IRS rules and regulations.
The IRS is very clear on this point. It can be found on page 21 of the Regulations Governing Practice before the Internal Revenue Service, Treasury Department Circular No. 230 (Rev. 6-2014), Catalog Number 16586R, under Section 10.27 Fees.
The IRS clearly states, “A practitioner may not charge a contingent fee for services rendered in connection with any matter before the Internal Revenue Service. A contingent fee includes a fee that is based on a percentage of the refund reported on a return, that is based on a percentage of the taxes saved, or that otherwise depends on the specific result attained."
About Disaster Loan Advisors? Employee Retention Credit (ERC) Services for Car Dealerships, Car Dealers, Auto Dealers, and Auto Dealerships
Disaster Loan Advisors? (DLA) is a trusted team of financial tax professionals and Employee Retention Credit (ERC) consulting specialists dedicated to saving businesses from lost sales, lost customers and clients, lost revenue due to financial and economic harm caused by the COVID-19 / Coronavirus disaster, Delta and Omicron variants, and other recession and inflation downturns in the economy.
Having worked with over 1500+ business clients navigate the SBA Economic Injury Disaster Loan (EIDL), Paycheck Protection Program (PPP), and Restaurant Revitalization Fund (RRF) programs, DLA further refined its expertise in the ERC Tax Credit IRS program having assisted more than 700+ companies with their ERC Claims. Assisting ownership groups with multiple business entities, multiple location business owners, and other complex situations that require an expert tax and accounting strategist to be brought in to assess the situation and create the most strategic path forward.
DLA further specializes in another key pandemic-era SBA / IRS program where business owners are leaving a lot of relief fund money on the table. It is the often misunderstood and confusing Employee Retention Tax Credit (ERC) / Employee Retention Tax Credit (ERTC) program whereby company owners and partners can retroactively receive up to $26,000 to $33,000 back for each W-2 employee they had on payroll for the 2020 and 2021 tax filing years. Done correctly, these tax credits or cash refunds can be claimed retroactively for up to 3 years.?
It’s encouraged that business owners obtain professional assistance in going through the complex 941-X amended filing process to help your company maximize the full value of the ERC Credit Program, while staying safe and compliant within the complex IRS rules and regulations for claiming the ERC Credits.
DLA doesn’t charge a percentage (%) of your ERC refund like many companies are charging. Instead, DLA works on a reasonable professional flat-fee basis.
"If you are looking for an ERC company that believes in providing professional ERC services and value for small business owners, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors is a good fit for you."
How the Easy Employee Retention Tax Credit 7-Step Process Works with Disaster Loan Advisors?
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For an Employee Retention Tax Credit Deep-Dive Analysis for Your Car Dealership, Visit: https://www.DisasterLoanAdvisors.com/erc
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