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
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
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. …