Woman Car Dealer Focused on Computer

All motor vehicle dealers’ NAICS codes are excluded from this tax-advantaged revenue procedure.

Tax strategies

Tax “Safe Harbor” for Remodel and Refresh Costs Does Not Apply to Dealerships

  • 12/7/2015

Many of our dealerships clients have read or heard about a tax accounting ruling, Revenue Procedure 2015-56, that allows retailers and restaurants to expense or capitalize building improvement remodel and refresh costs under a “safe harbor” method. This ruling could have benefited dealers making improvements to meet manufacturer image upgrade programs, but unfortunately they have been specifically excluded from eligibility.

Motor vehicle dealer NAICS codes excluded; heavy-duty truck and trailer dealers considered wholesalers

The safe harbor method outlined in this revenue procedure allows qualified retailers and restaurants to expense 75 percent of permitted remodel and refresh costs; the remaining 25 percent can be capitalized as building costs. But this revenue procedure excludes taxpayers conducting activities within the following North American Industry Classification System (NAICS) codes:

  • 4411 - New car and light truck dealers (automotive dealers)
  • 4412 - Other motor vehicle dealers

These NAICS codes exclude the following dealership retailers:

  • New car and truck
  • RV
  • Motorcycle
  • Boat
  • ATV
  • Utility trailer
  • All other motor vehicle dealers

Although these categories do not list heavy truck and trailer dealerships, their NAICS codes are always categorized as wholesale trade, which excludes them as retailers eligible for this safe harbor.

Further guidance not forthcoming

We were hopeful similar guidance might be forthcoming specifically for motor vehicle dealers. Unfortunately, our sources within the automotive group at the IRS are unaware of any plans to provide further information specifically for dealerships. We continue to ask for such guidance and will provide any future developments with you as we learn more.

How we can help

CLA’s dealerships industry professionals are always glad to help you make sense of complex tax and accounting issues. We can work with your dealership to craft an advantageous tax strategy that matches your business’s needs.