Right of First Refusal Dispute Reinforces Importance of Motor Vehicle Review Board 

A recent federal district court decision reinforced the importance of the Illinois Motor Vehicle Board in resolving Illinois Motor Vehicle Franchise Act disputes. (Mercedes-Benz USA, LLC v. JP Motors, Inc., 2023 U.S. Dist. Lexis 211132).  

The dealer provided statutory notice to Mercedes that it intended to sell its combined Mercedes-Benz, Nissan, and Chevrolet dealership, as required under the Illinois Motor Vehicle Franchise Act.  Mercedes contended that it was entitled to an apportionment of the portion of the sale that could be attributed to the Mercedes-Benz assets in the buy/sell agreement and that the dealer could not complete the sales without first providing the apportionment.  The dealer responded that the Act did not entitle Mercedes to an apportionment when deciding whether to exercise a right of first refusal.

Instead of filing a protest before the Illinois Motor Vehicle Review Board, Mercedes sued the dealer in U.S. District Court in the Northern District of Illinois for breach of contract, alleging that refusal to provide the apportionment information violated the Mercedes-Benz dealer agreement.  Mercedes also sought a declaratory judgment that it was entitled to an apportionment before the dealer could sell its dealership. (Read on)

IADA PROPOSES LEGISLATION TO INCLUDE THE COUNTY OF RESIDENCE ON DRIVER'S LICENSES

IADA has introduced legislation, House Bill 4495, to require the Secretary of State to include an applicant's county of residence on a driver's license and IDs to assist automobile dealers in Illinois in collecting the correct taxes, particularly when it comes to use tax based on the purchaser's county of residence.

HB 4495 will allow dealers to easily determine the appropriate tax rate based on the buyer’s county. This is especially useful in Illinois, where local tax rates can vary significantly from one county to another, especially in Cook and the collar counties. 

In Illinois, the tax rates on a motor vehicle purchase can vary significantly, based on the location of the purchase and the location where the vehicle is registered. Motor vehicle dealers are required to collect Retailers’ Occupation Tax administered by the Illinois Department of Revenue, which is based on the point of sale. Many motor vehicle dealers are also required to collect additional Use Taxes, which are based on the purchaser’s residence. For example, motor vehicle dealers in Cook and the collar counties who sell vehicles to Cook County residents are required to collect the Cook County Home Rule Use Tax and remit the tax to Cook County. If the dealer fails to collect the Cook County Home Rule Use tax, the dealer is subject to Cook County tax liability.

HB 4495 is being sponsored by Representative Jay Hoffman (D) from Belleville. Accurate collection and remittance of taxes based on the county of residence ensure equitable distribution of tax revenue, compliance with state laws, and reduced risk of legal complications for both the buyer and the seller.

LEGISLATION INTRODUCED TO MANDATE 100% EV SALES BY 2035

SB 2839 (Simmons) would require the Illinois EPA to adopt rules to implement the motor vehicle emission standards of the State of California in Illinois and expressly adopt California's "Advanced Clean Cars II" program (ACC II), which mandates 100% of vehicle sales to be electric by 2035.

Under the AAC II program, automakers are required to increase the proportion of zero-emission vehicle (ZEV) sales year by year. As laid out by California, the standard sets the annual percentage of new ZEV sales at 35% for model year 2026, build to 68% in 2030, and reach 100% in 2035. However, for states that adopted ACC II in 2023, the regulation takes effect for vehicles beginning in model year 2027.

SB 2839 represents an even more aggressive mandate than proposed by the Biden Administration's 2023 proposal, which aims for 67.5% EV sales by 2032. Nearly 4,000 car dealerships across the United States penned a letter to President Biden in 2023 expressing financial concerns regarding the impact of EV regulations. The federal rule is expected to be finalized by March 24. Still, groups like the National Automobile Dealers Association (NADA) and the Alliance for Automotive Innovation (representing auto dealers) are fighting back against those rules.

So far, 12 other states have taken regulatory action to adopt similar versions of California's Advanced Clean Cars II (ACC II) regulations. These states are Colorado, Delaware, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, and Washington.

IADA opposes these mandates as we believe that Illinois customers should be able to decide what vehicle makes the most sense for them, not the Illinois Environmental Protection Agency or the State of California. Like the mandates proposed on the federal level, SB 2839 fails to address real-world concerns regarding customer choice and market readiness.

SB 2839 has not been assigned to a Committee, but IADA will ensure that we closely monitor the proposal and will alert our members if the bill is moved.

PUSH TO CAP THE RETAIL DISCOUNT/VENDOR COLLECTION ALLOWANCE

A proposal in the Illinois Senate, Senate Bill 2574 (Cervantes), would cap the vendor collection allowance at $1,000 in any calendar year. After a retailer reaches that $1,000 threshold, all funds previously reserved under the allowance would be diverted into the new Working Families Fund.

The vendor collection allowance is the 1.75% portion of the sales tax collected on each transaction that an Illinois retailer is allowed to retain as reimbursement for the retailer's costs of serving as the State's sales tax collector. As an example, if a customer purchases $100 of goods and an average combined state and local sales tax rate of 8.74% is applied, the retailer is allowed to keep $0.15 of this transaction (1.75% of the $8.74 in tax collected on the $100).

This discount exists as a reimbursement for services rendered by Illinois retailers to the state and local governments – services that they cannot do on their own.

This 1.75% does not come close to covering the actual total costs involved in collecting all required taxes. Independent studies have concluded that the average cost of collecting and remitting sales tax is between 3% and 7.2% of all sales tax collected – well below the 1.75% Illinois allows. Illinois has one of the nation's most complicated sales tax systems and, therefore, has one of the most expensive compliance costs. This allowance partially reimburses dealers for their ongoing cost of serving as the State's sales tax collector. 

It appears that a significant theme of this year's legislature will be centered on the upcoming elections and balancing the State's budget, including a potentially substantial budgetary shortfall. With that in mind, legislators will surely seek new ways to increase revenue for their desired spending.

SB 2574 has been assigned to the Senate Revenue Committee, but a hearing date has not yet been set. IADA is prepared to oppose such attempts at limiting a dealer's allowance.

We will continue to provide timely updates on these developments. Your awareness and involvement are crucial in shaping a favorable legislative landscape for our industry.

LEGISLATURE SET TO RETURN TO SPRINGFIELD FOR SESSION WEEK OF FEBRUARY 5TH

To date, the General Assembly has introduced nearly 3,000 Senate Bills and more than 4,600 House Bills. With the cut-off for new bill introductions approaching on February 9th, we're poised to gain a more defined understanding of the legislative scene, anticipating the total count of bills to exceed 10,000. While typical for a General Assembly's second year, this volume requires careful attention and analysis.

Expect ongoing updates from us regarding these matters. Your engagement and understanding are vital in influencing legislation that benefits our industry.

Updated Labor Posters Back in Stock      

Updated labor posters are available at www.illinoisdealers.com, or they can be ordered by calling 217-753-0220. These posters include the latest updates to the Illinois Minimum Wage Law, Illinois Paid Leave Act, Illinois Human Rights Act (Job Discrimination and Sexual Harassment in the Workplace and Pregnancy and Your Rights in the Workplace), OSHA, and Equal Employment Opportunity Act notices required by State and Federal agencies.