---

Dealers Prevail on Incentive Pay Withholding Issue, NADA Says

29 October 1998

Dealers Prevail on Incentive Pay Withholding Issue, NADA Says

    WASHINGTON, Oct. 28 -- The National Automobile Dealers
Association announced today it successfully advocated to the Internal Revenue
Service that manufacturer incentives should not be treated as employee wages.
NADA says the IRS is abandoning efforts to require dealers to withhold taxes
from manufacturer incentive payments paid to dealer personnel.
    "NADA is proud to serve as the voice of the dealer on this important
issue," said NADA Chairman Paul Holloway. "Treating manufacturer incentive
payments as employee wages would have imposed a tremendous financial and
paper-work burden on dealers. The decision by the IRS to treat incentive
payments as miscellaneous income is the proper resolution of this issue."
    Vehicle manufacturers traditionally pay incentives directly to sales
personnel to reward them for achieving sales objectives. Dealer sales
personnel are issued IRS 1099 forms by manufacturers reflecting total
incentive payments earned during the year. Dealerships are not responsible for
the tax consequences of these payments.
    When the IRS claimed that a Maine dealership had to treat the payments as
wages subject to withholding, NADA stepped in to help the dealership appeal
its case and prepare legal briefs. As a result, the IRS dropped its claim in
the face of the dealership's compelling legal arguments. While the Maine case
was pending, NADA met with the IRS and pressed the position that the payments
are not wages and neither the manufacturers nor dealers should be required to
pay FICA, FUTA or withholding taxes.
    The National Automobile Dealers Association represents 19,600 franchised
new-car and truck dealers holding nearly 40,000 separate franchises, domestic
and import.