Group Seeks Solution to Excise Tax Dispute

By Janice Francis-Smith The Journal Record | THE JOURNAL RECORD, November 25, 2002 | Go to article overview
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Group Seeks Solution to Excise Tax Dispute

Janice Francis-Smith The Journal Record, THE JOURNAL RECORD

New-car dealers say the franchise system is being attacked. Used- car dealers say the state may be violating interstate commerce laws.

Seeking a solution to the dispute, the Joint Interim Study on Automobile Industry Equity formed a task force during the last legislative session.

The task force, assigned the job of working out a solution to the question of who should and who should not have to pay an excise tax on vehicles intended for resale, has had one meeting. Members of the state House and Senate are included, as well as new- and used-car dealers and representatives from the rental car industry.

The dealers focused on excise taxes charged on used current- model cars. The excise tax is only charged if a dealer sells a current-model vehicle to another dealership that does not have a franchise for that make of vehicle. Excise taxes can be avoided by selling the vehicle back to the manufacturer, selling to a dealer that owns a franchise for the same make of vehicle, or by keeping the vehicle on the lot for a year.

Odell Morgan, executive director of the Oklahoma Independent Automobile Dealers Association, said that Oklahoma is now the only state that charges a licensed car dealer to pay excise tax on a vehicle intended for resale.

"There isn't any other business where the state requires the business owner to pay sales tax on items for resale," Morgan said. Back in 1987, at the insistence of new-car franchise dealers, the state changed the law to exempt current-year models from the definition of "used" vehicles in order to charge the excise tax on those vehicles, he said.

Morgan asserted that the excise tax, which results in driving up prices for Oklahoma dealers, is driving would-be buyers -- both dealers and retail customers -- out of state, where the same vehicles are available at a lower price, minus the excise charge.

While Morgan said he understood that new-car franchise dealers spend large sums of money on maintaining a franchise, he added that it is the dealer's choice to spend those funds in order to obtain the benefits a franchise has to offer.

"In order to enter into competition in a protected market area, (franchise dealers) agree to spend a great deal of money," Morgan said. "That expense is not state required, like the excise tax -- it's a decision made by the business owner to enter into that market. But that protected market only extends to new cars, not used."

New-car dealers say the excise tax used-car dealers have to pay is negligible compared to the overhead new-car dealers incur in providing warranty service, and removing the tax would contribute to unfair competition between new- and used-car dealers.

"The franchise system is what's on attack here," said Jackie Cooper, who runs a BMW new-car dealership in Oklahoma City. "They're complaining about a few dollars in excise taxes. They sell in competition with the dealerships, and they don't have the overhead dealerships do. We have to take care of whatever they sell."

Cooper said that while the dealerships do get an allowance for warranty service, they are not reimbursed the full price for parts and labor. He said there is nothing to prevent a used-car dealer -- who doesn't have anywhere near the overhead cost -- from setting up shop right across the street from him and offering the same make and model vehicle for less. When that same car needs to be serviced, however, it will be driven across the street to Cooper's shop.

"They want the advantages of a new-car dealership without the expense, the accountability or the responsibility," Cooper said.

Morgan countered that many franchise dealerships welcome the warranty work, since it generally results in additional sales for things such as tires and accessories.

Cooper, who used to operate a used-car dealership, said he understands both sides of the issue, and still believes the used- car dealerships should just pay the excise tax and count it as a part of the price of the vehicle.

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