Thursday, March 12, 2015

Tax Break for Auto Salesmen

Employees are normally taxed if they receive the free use of a car from their employer. 

But Internal Revenue Code section 132(j)(3) generally provides that a car salesman is not taxed on use of his or her employer's vehiclesBasically, the salesman can drive the car as much as he or she wants during the working day, plus some more driving after hours. 

The requirements are:
1. The salesman is a full-time employee of the car dealership,
2. The car is used in the geographic sales area in which the dealership sales office is located (a radius of at least 75 miles),
3. The dealership prohibits family members from using the car, the storage of personal items in the car, and the use of the car for personal vacation trips, and
4. The dealership limits the use of the car outside the dealership's normal working hours to the normal commuting distance plus around ten miles per day. 
 The Internal Revenue Service has issued numerous regulations and procedures in order to ensure that this tax break does not get out of hand, including the 33 pages of Revenue Procedure 2001-56 [pdf]. 

The automobile use tax break is unfortunately not available to the dealership's other employees, such as mechanics, bookkeepers, and part-time salesmen.

§ 132 Certain fringe benefits.

(a) Exclusion from gross income.
Gross income shall not include any fringe benefit which qualifies as a—
(1) no-additional-cost service,
(2) qualified employee discount,
(3) working condition fringe,
(j) Special rules.
(3) Auto salesmen.
(A) In general. For purposes of subsection (a)(3), qualified automobile demonstration use shall be treated as a working condition fringe.
(B) Qualified automobile demonstration use. For purposes of subparagraph (A) , the term “qualified automobile demonstration use” means any use of an automobile by a full-time automobile salesman in the sales area in which the automobile dealer's sales office is located if—
(i) such use is provided primarily to facilitate the salesman's performance of services for the employer, and
(ii) there are substantial restrictions on the personal use of such automobile by such salesman.

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