Are you in the auto sales industry? If so, you may be able to exclude the use of a demonstrator (demo) vehicle from gross income and wages — and save on your income and payroll taxes.
Generally, full-time auto salespeople using a demo in the area surrounding the sales office can exclude from gross income and wages the use of that demo, as long as it is used to improve the salesperson's performance at the dealership and personal use of the vehicle is restricted. This is called a working condition fringe benefit.
To qualify, the demo must:
- Currently be included in the dealership's inventory, and
- Be available for test drives by customers during the employee’s normal business hours.
To be considered a full-time auto salesperson, you must:
- Be employed by an auto dealer,
- Regularly spend at least half of a normal business day performing the functions of a floor salesperson or sales manager,
- Be directly involved in substantial promotion and negotiation of auto sales to customers,
- Work a number of hours considered full time in the industry (but not less than 1,000 hours per year), and
- Generate at least 25% of your gross income from the dealership as a result of direct promotion and negotiation of auto sales to customers.
An auto salesperson's sales area consists of the dealer's office and the geographical area surrounding that office. This geographical area is the larger of 75 miles surrounding the dealer's office or the one way commuting distance (in miles) of the particular salesperson from the sales office. If you qualify as a full-time auto salesperson, you also should be aware that your personal use of the demo is limited. The demo may not:
- Be used by anyone other than the full-time auto salesperson,
- Be used for personal vacation trips, and/or
- Have personal possessions stored within it.
Also, the total use of the auto by the salesperson outside his normal working hours is limited to miles commuted between his home and the dealer's sales office, plus an additional average of 10 miles or less per day.
The bottom line is, if you are in the business of selling cars and drive a demo, it’s worth a look to see if you can minimize your income and payroll taxes.
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.