< Previous10Meet the Elected Officials Who Will Vote to Strengthen the Franchise LawsThese luncheons are our opportunity to meet with our elected officials and garner their support to vote for the franchise system laws that protect our businesses. We must play an active role in building a relationship with our elected officials to secure our franchise rights.Please make these lunches a top priority in your schedule as we need to secure support from Orange County Assemblymembers and Senators:LEGISLATIVELUNCHEONSFriday, April 6th Assemblyman Tom DalyFriday, April 20th AssemblywomanSharon Quirk-SilvaFriday, April 27th AssemblymanMatthew HarperFriday, May 4thAssemblyman Bill BroughFriday, May 11thSenator John MoorlachFor more information or to RSVP for one of these upcoming lunches call OCADA at (949) 428-5050 or email Cristin Collings at cristin@ocada.org.PROTECTING THE FRANCHISE SYSTEMab 2107 AB 2107, a comprehensive franchise bill sponsored by the California New Car Dealers Association (CNCDA), seeks to continue to protect the franchise system and California new car dealers by:California’s new motor vehicle franchise system vitally affects the general economy of this state and the public welfare by providing the consuming public with a well-organized distribution system for the availability and sale of new vehicles and ensuring a network of quality warranty, recall, and repair facilities to maintain those vehicles. Over multiple decades, California franchise laws have been enacted in response to onerous requirements continuously imposed by manufacturers upon their franchised dealers. AB 2107 contains multiple provisions designed to improve California’s franchise laws; key components include:STRENGHTENING California’s franchise lawsCONFORMING California franchise laws to recent actions in other statesENFORCING manufacturer accountability for unlawful actions against dealersADDRESSING inappropriate treatment of dealers by manufacturers14Existing law states that dealers should be reasonably compensated for warranty work and customer retail pay should be included in assessing such reasonableness. AB 2107:> Clarifies reasonableness by establishing a process for how a dealer can demonstrate theretail rates for parts and labor and be reimbursed at those retail rates for warranty work.> Defines how the factory can respond to a request for retail rates including notificationguidelines and a timeline.> Establishes protections for dealers pursuing this newly established retail reimbursementon warranty process from adverse actions and penalties from the manufacturer includingassessing surcharges, limiting vehicle or parts allocations and conducting audits.RETAIL REIMBURSEMENT ON WARRANTYPresently, California only requires a dealer to upgrade their facility if the requirement is reasonable in light of existing circumstances, including economic conditions and advancements in vehicular technology. AB 2107:> Adds a new standard that a required facility upgrade is not reasonable ifthe dealer has modified their facility in the last 15 years.> Expands the current Buy California provisions to signs therebyprohibiting the manufacturer from requiring the use of a specific vendorif local vendors are available.> Clarifies that a manufacturer cannot limit a dealer’s method ofpayment for signs.15 YEAR FACILITY UPGRADE STANDARDCurrently an automaker cannot compete against a dealer within a relevant market area. AB 2107:> Expands this to a statewide prohibition.> Establishes that this competition prohibition alsoincludes subscription-type programs in Californiaunless the automaker uses franchisees to operate theprograms.> Clarifies what are “affiliates” under the Vehicle Codeto ensure all factory affiliates are captured.AUTOMAKER COMPETITION AGAINST DEALERS2The New Motor Vehicle Board has limited authority to hear only certain types of protests from a dealer – franchise terminations, additional dealership locations, and warranty reimbursement claims. AB 2107:> Expands the types of protests that a dealer can file at the Board, includingreviews of performance standards of incentive programs, automakercompetition against a dealer and retail warranty reimbursement rates.> Clarifies that the NMVB can hear relevant franchise law violations by amanufacturer when a dealer files a protest.> Grants protests filed by a dealer priority over any relevant lawsuit filed bythe manufacturer in Superior Court.NEW DEALER PROTEST AUTHORITY AT THE NEW MOTOR VEHICLE BOARD3(See more AB 2107 Protections on page 12)116Despite specific performance standards criteria enacted just five years ago, recent factory performance standards have been used in ways that raise questions about the fairness and equity of how dealers are treated. AB 2107:> Builds upon existing law which requires allperformance standards be reasonable with adealer’s demographics, market characteristics,allocation, local and statewide economiccircumstances and historical performance of theline-make.> Clarifies that factory programs where dealershave to pay any money in order to participate inthe program is not a valid incentive program.> Prohibits any performance standard thatmeasures a dealer’s retail customer sales in theservice department.UPDATING PERFORMANCE STANDARD RESTRICTIONS10AB 2107 has several other provisions that seek to balance the inequities imposed by manufacturers upon dealers. AB 2107:> Restricts the manufacturer’s ability to select specific vendors for a dealer’s digitalservices including websites, data management systems, and advertising.> Adds new protections for dealers relating to the manufacturer’s ability to exercise aright of first refusal when selling a franchise.> Prevents the manufacturer’s ability to restrict or discourage dealers from verifyingcustomer service bulletins and campaigns.OTHER FRANCHISE LAW CHANGES7When a manufacturer is allowed to spin-off a new line-make of an existing product or allege that a new model can be sold directly by the manufacturer’s affiliate solely to exclude dealers who previously sold those same vehicles, California’s franchise laws are undermined. AB 2107:> Specifies that a dealer, who sold a vehicle to a customer, can continue to provideservice, parts and accessories for the vehicle as long as the dealer maintains thesame franchise.> Restricts the manufacturer’s ability to force dealers to repair a vehicle that the dealer isnot allowed to sell or lease.ADDRESSING BRAND SPIN-OFFS AND AFFILIATES8California allows dealers to sell ancillary products - like service contracts or debt cancellation agreements - to customers free of any penalty from the manufacturer for not selling the manufacturer’s approved or endorsed product. AB 2107:> Clarifies that treating dealers differently when providing financing or advancing moneybecause the dealer sold a non-approved product is prohibited.> Preserves the existing statutory disclosure that dealers must give to customers whenselling an ancillary product that is not approved or endorsed by the manufacturer.NON-FACTORY SERVICE CONTRACTS9While manufacturers indemnify their dealers for causes that result in the dealers being sued, manufacturers and their affiliates are increasingly requiring dealers to indemnify them for actions that the dealers are forced to perform. AB 2107:> Provides indemnification to dealers for any actthat the manufacturer or affiliate imposes onthe dealer.> Prohibits requiring a dealer to indemnify themanufacturer or affiliate for any program orrequirement imposed on the dealer.INDEMNIFICATION OF DEALERSFollowing CNCDA’s last franchise bill, the Association was granted the authority to bring a protest against an automaker’s export and sale-for-resale policies. CNCDA filed a protest against Jaguar Land Rover and won. AB 2107:> Extends this protest authority beyond 2019, which is when this authority is currently set to end.> Clarifies the definition of “adverse actions” to include manufacturer threats or actions taken in response to questionsraised by the NMVB.> Deters against future egregious export and sale-for-resale policies by the manufacturers.ASSOCIATION PROTEST ABILITY AT THE NEW MOTOR VEHICLE BOARD51213CNCDA DEALERDAYMay 16, 2018OCADA Will Take Care of Your:• Private Air Transportation to Sacramento• Limo/Ground Transportation• Dealer Day RegistrationJOIN THE OC DELEGATION ON A CHARTERED FLIGHT TO DEALER DAY!By joining the OC Delegation you will join forces with other California Dealers at the Capitol, to protect your franchise rights and future of your business.SPACE IS LIMITED CALL OCADA AT 949.428.5050 TO RESERVE YOUR SPOTTHE NEW FRANCHISE BILL NEEDS YOUR SUPPORTFor over 40 years, BBVA Compass has provided auto dealers with the flexible and affordable commercial financial solutions they need to operate asuccessful dealership: For your dealership Floorplan & real estate financing Equipment financing & leasing options Inventory & parts receivablesmanagement solutionsFor your customers Competitive retail financing options Quick credit decisions & reliable fundingDan Noack West Region Dealer Services 602-317-9379 Eugene Gonzalez Relationship Manager, Orange County Market 949-214-0017 Our experienced professionals are committed to helping you make your business more efficient and more profitable — all with the added support of top-level customer service. 1-800-COMPASS • All credit and accounts are subject to approval, including credit approval. BBVA Compass is a trade name of Compass Bank, a member of the BBVA Group. Compass Bank, Member FDIC. Give us a call today. Your business is built on service. So is ours. Follow us on:15GET TO KNOW YOUR LEGISLATORSenator Janet NguyenRepresenting Fountain Valley, Garden Grove, Los Alamitos, Santa Ana, Seal Beach,Westminster, the unincorporated communities of Midway City and Rossmoor, as well as portions of Anaheim, Huntington Beach, Long Beach, and Orange. Favorite Quote: “Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.” -President Ronald Reagan Committee Membership: Vice Chair, Governance and Finance; Vice Chair, Health; Human Services, and Veterans Affairs. Member of the Governor’s Military Council and State Allocation Board. Biography: The Honorable JanetNguyen was overwhelmingly elected to the California State Senate in November 2014 to represent the residents of the 34th Senate District.As a first-generation American, Senator Nguyen is proud to give back to the country that has given her freedom and liberties not afforded to her by her country of origin. Born in Saigon, Vietnam, Senator Janet Nguyen and her family escaped their homeland on a small wooden 10-meter boat sailing across the South Asia Sea in search of freedom. After passing through numerous refugee camps, Senator Nguyen and her family arrived in California in 1981.Like many new immigrants, the Nguyen family struggled financially. At the age of 10, Senator Nguyen began cleaning houses to help pay for living expenses and school supplies. Her father worked at the local community college as a busboy while also taking ESL classes. Through hard work and by focusing on educational opportunities, the Nguyen family saved enough money and eventually moved to Orange County.Senator Nguyen’s love for the United States compelled her to pursue a career in public service. She takes great pride in representing individuals of all backgrounds and her work has led to many firsts in state and national politics. She is the first Vietnamese-American in the country to be elected to a State’s Legislative Senate house and is currently the highest-ranking Vietnamese-American elected official in the State of California.Prior to the California State Senate, Senator Nguyen was a member of the Orange County Board of Supervisors from February 2007 to December 2014. There, Senator Nguyen was the first woman to represent the First Supervisorial District, the first Asian-American and the youngest Supervisor elected in Orange County history. Senator Nguyen also previously served on the Garden Grove City Council. As a community servant, Senator Nguyen supports initiatives that bring much needed services directly to residents and which remove barriers of government bureaucracy. She proudly hosts various functions throughout her district, which include flagship events that assist thousands of seniors, children and families annually. For her legislative efforts on behalf of Veterans, she has received several awards, including: the 2017 ‘Legislator of Year Award’ from the Association of the United States Army, the 2017 ‘Legislator of the Year Award’ from the Vietnam Veterans of America and the 2015 American Legion ‘Leo P. Burke Legislator of the Year Award’. Additionally, for her support of the business community, Senator Nguyen has been honored as a ‘Champion of Manufacturing”, has received a 100 percent rating from the California Chamber of Commerce as well as a 100 percent rating from the National Federation of Independent Business. Senator Nguyen is a graduate of the University of California, Irvine where she received a Bachelor of Arts degree in Political Science. She is also a graduate of the Aspen Institute Rodel Fellowship in Public Leadership Program, a two-year invitation only program made up of the nation’s most promising young political leaders.She resides in Fountain Valley with her husband Tom Bonikowski and two sons.District Office Contact Information:(714) 741-103410971 Garden Grove Blvd.Suite DGarden Grove, CA 92843he 2017 tax reform reconciliation act, also known as the Tax Cuts and Jobs Act (TCJA), will have a significant impact on dealerships nationwide. It’s perhaps the most significant change to the Tax Code in over three decades, including reducing the top corporate tax rate to 21%, and providing a 20% taxable income deduction for certain pass-through entities. With proper planning, these changes can provide dealerships with significant tax-saving opportunities.There are also hundreds of other new provisions, modifications, and repeals of existing provisions along with numerous effective and phaseout dates. These are the most important changes affecting dealers in 2018 and beyond.What’s ChangingUnless otherwise indicated, the following provisions are effective for tax years beginning after December 31, 2017.Interest ExpenseThere’s a new limitation on the deductibility of business interest expense. Generally, business interest expense will only be deductible up to 30% of adjusted taxable income of the taxpayer, which is taxable income with several adjustments including adding back depreciation, amortization, and depletion—at least for tax years beginning before January 1, 2022—and the deduction for qualified business income of a pass-through entity. This limitation applies at the entity level and at the individual level. Any disallowed interest expense will be carried forward indefinitely. A special exception was added to allow in full floor plan financing interest expense, which relates to indebtedness used to finance the acquisition of motor vehicles held for sale or lease and which is secured by the inventory acquired.Taxpayers with average annual gross receipts less than $25 million will be excluded from the interest expense limitation.Fixed AssetsFirst-Year Bonus Depreciation The first-year bonus depreciation deduction is effective for qualified property acquired and placed in service after September 27, 2017. It allows taxpayers to deduct 100% of the cost of qualified business assets as additional first-year depreciation. The bonus depreciation provisions will apply to new and used assets and there are no income thresholds or phaseouts on the amount of bonus depreciation that can be taken each year. The 100% bonus depreciation deduction is effective until December 31, 2022, when it’s scheduled to begin phasing out over five years, with no bonus depreciation in 2027. However, bonus depreciation isn’t allowable for businesses that rely on the new floor plan financing interest deduction exception to the interest limitation deduction. Until clarification of this rule exists, it’s unclear if dealers with flooring interest deductions will qualify for first-year bonus depreciation.Section 179The benefit of Section 179 expensing has been expanded, with the maximum amount a taxpayer can expense under Section 179 increased to $1 million. The phaseout threshold is increased to $2.5 million.• The definition of qualified real property eligible for Section179 expensing is expanded to include the following• Qualified improvement property• Improvements to nonresidential real property placed inservice after the building was first placed in service if theyare for any of the following:• Roof• Heating, ventilation, and air-conditioning property• Fire protection and alarm systems• Security systemsLike-Kind Exchanges The TCJA modifies the Section 1031 like-kind exchange provisions by limiting their application only to real property. Taxpayers will no longer be able to defer the gain on vehicles, equipment, machinery, and other non real property assets.Tax AccountingPass-through Entity Business Income DeductionIn an attempt to not disadvantage pass-through entities relative to the 21% tax rate for C corporations, the TCJA introduced a new deduction for qualified business income of a pass-through entity in lieu of a lower nominal tax rate. Tax Reform Opportunities and Challenges for Dealerships Sid Tobiason, CPA, and Lewis Fisher, CPA, Partners, Moss Adams LLPByT16(Continues Page 18)Assurance, tax, and consulting offered through Moss Adams LLP. Investment advisory services offered through Moss Adams Wealth Advisors LLC. Investment banking offered through Moss Adams Capital LLC.MOSSADAMS.COM/AUTOMOTIVELAS VEGAS, NV6:13 AMPSTINSIGHT RISES IN THE WESTHere, the sun rises on new opportunities and broad perspectives. Bolster the financial standing of your dealership or client by having the CFO or controller attend the 2018 Automotive CFO Conference in Las Vegas, June 28–29. They’ll share best practices and learn about vital accounting and tax issues—all while earning CPE credit. RSVP: stephanie.asa@mossadams.comRISE WITH THE WEST.Owners of pass-through entities will be entitled to a deduction up to 20% of their aggregate net qualified business income from the pass-through entity. In effect, for taxpayers in the highest tax bracket receiving the full 20% deduction, the maximum tax rate on qualified business income of a pass-through entity will be approximately 29.6%. This provision won’t apply to taxable years beginning after December 31, 2025.The 20% deduction is limited to the greater of two thresholds:• 50% of the W-2 wages paid by the business• 25% of the W-2 wages paid by the business plus 2.5% ofthe unadjusted basis of the business’s qualified tangiblepropertyThese thresholds don’t apply to individuals with taxable income less than $157,500 or married couples with income less than $315,000. If a taxpayer has a net qualified business loss for a year, it’s carried forward to future tax years to reduce any future net qualified business income.Most dealerships will qualify for this deduction in their operating pass-through entities. However, many may be limited on the deduction of their real estate entities. In some cases, this may be remedied using restructuring. Owners of personal services businesses are generally precluded from taking the pass-through entity business income deduction.Deduction LimitationsExcess Business LossesThe deductibility of noncorporate taxpayers’ aggregate net business losses will be limited to $250,000 for a single taxpayer or $500,000 for a married taxpayer. Any business losses in excess of these thresholds will be carried forward under the net operating loss provisions. This new excess business loss limitation is applied before the existing passive activity loss rules and no longer applies after 2025.Net Operating LossesThere will be no carry back period and net operating losses (NOLs) will be carried forward indefinitely for years ending after 2017. The NOL deduction allowed in any given year will also be limited to 80% of a taxpayer’s taxable income for NOLs generated in years beginning after 2017. Under the previous law, NOLs generally were either carried back two tax years, carried forward up to 20 tax years, or both. The 80% limitation doesn’t apply to NOLs generated in years beginning before 2018.Meals, Entertainment, and Travel DeductionsFor amounts paid or incurred after December 31, 2017, no deduction will be allowed for the following types of expenses:• Entertainment, amusement, or recreation• Membership dues for clubs organized for business,pleasure, recreation, or other social purpose• Facilities or portions of those facilities used in connectionwith any of the items above• Qualified transportation fringe benefits for employeesTaxpayers will still be entitled to deduct 50% of business food and beverage expenses. Next StepsThe application of these provisions to any organization’s specific facts and circumstances will be unique and will likely require detailed planning. Consult your tax professional to learn more about how the new tax law could directly affect you and your business. Sid Tobiason has practiced public accounting since 1978. He specializes in federal income and estate taxation of automobile dealerships. He can be reached at (858) 627-1448 or sid.tobiason@mossadams.com. Lewis Fisher has practiced accounting in the automotive and dealer services industry since 2000. He specializes in providing assurance and consulting services to clients in the transportation business, with a focus on retail automotive companies. He can be reached at (949) 623-4169 or lewis.fisher@mossadams.com.Assurance, tax, and consulting offered through Moss Adams LLP. Investment advisory services offered through Moss Adams Wealth Advisors LLC. Investment banking offered through Moss Adams Capital LLC.18PLEASE EMAIL KIM MCPHAUL OR CALL OCADA AT (949) 428-5050RSVP REQUIREDNeed Techs?Meet OC’s Auto Tech College Students!GOLDEN WESTCOLLEGEApril 4th4:30 - 7:30 PMCYPRESS COLLEGEMay 16th4:30 - 7:30 PMSIGN UP TODAYIn an effort to connect you with local college students studying to become Automotive Technicians, OCADA will host events at colleges in Orange County with Automotive Technology programs.Talk to Auto Students looking to begin their career as a TechnicianMeet OC’s Automotive Instructors and learn about the curriculum and flex-schedule classes MEET THE STUDENT TECH EVENTSSANTA ANACOLLEGE April 26th4:30 - 7:30 PMExclusive Events for Service Directors & Dealership Shop ManagersNext >