Treasury has released proposed regulations addressing the new 20 percent business deduction as well as bonus depreciation under the tax reform legislation signed into law December 2017. Treasury is currently requesting comments on the regulations before they become final. Accordingly, there is the potential that the provisions discussed below might change. These complex regulations overall are favorable for dealers and we encourage you to discuss the potential impact these regulations might have on your individual tax situation with your tax advisor.

Section 199A Proposed Regulations: New 20% business income deduction available for individuals, trusts, and estates:

•  The new 20% deduction is available for individuals, trusts and estates on qualified business income. This deduction becomes subject to limitations once you reach certain income levels (taxable income greater than 157,500 for single taxpayers and 315,000 for married taxpayers). If your taxable income exceeds the threshold levels, then the potential 20% deduction is subject to limitation based on 50% of W-2 wages or a combination of 25% of W-2 wages plus 2.5% of the unadjusted basis (UBIA) in qualified assets of each trade or business.
• Rental real estate entities that have common ownership with the dealership generally will be considered as a qualified trade or business for purposes of the deduction.
• Taxpayers can aggregate multiple qualified trades or businesses with at least 50% common ownership into a single group if the trades or businesses meet certain criteria. Taxpayers can choose which trades or businesses to aggregate at the individual level. Aggregation is not mandatory, but once an election to aggregate is made, the grouping is binding.
• Wages paid through an employee leasing company, common paymaster or a professional employer organization (PEO) qualify as W-2 wages for purposes of the W-2 wage limitations under the new regulation.
• Specified service trades or businesses do not qualify for the 20% deduction after an individual’s taxable income exceeds the phase-out thresholds. Questions remain as to whether a management company related to a dealership might be eligible for the 20% deduction or if it would fall under the definition of a specified service trade or business.
• A netting rule requires an individual taxpayer to net qualified business losses against income from other qualified trades or businesses before applying the W-2 wage and UBIA limitations. After netting, any W-2 wages and UBIA amounts from the trade or business with negative income are lost and not taken into consideration when applying the limitations for the businesses with positive income.
• If netting results in an overall qualified business loss, there is no current year 20% deduction and the net loss carries forward to the following year. In the following year, the carried forward loss will be netted against qualified business income from other trades or businesses.
• Section 1231 income characterized as capital gain is ineligible for the 20% deduction.
• There are increased reporting requirements at both the individual taxpayer level and the business entity level. Individual taxpayers must annually disclose trades or businesses aggregated for purposes of computing the 20% deduction. Business entities are now required to provide each
  partner/shareholder with the qualified business income, qualifying W-2 wages and UBIA for each separate trade or business carried on by the entity.
• Several anti-abuse rules were created to negate certain restructuring, employee reclassification, related party transactions, and other strategies aimed at creating a 20% deduction for businesses not otherwise eligible.

Bonus Depreciation Proposed Regulations:

• 100% bonus depreciation is available for assets acquired and placed in service after September 27, 2017. Starting in 2023, the bonus depreciation percentage decreases by 20% annually until 2027 when it is completed phased out. (2023 – 80%, 2024 – 60%, 2025 – 40%, 2026 – 20%, 2027 and on – 0%)
• Questions remain regarding the floorplan interest exemption for the new 30% interest limitation rules and the corresponding restriction on a dealership’s ability to claim bonus depreciation.
• Used property now qualifies for bonus depreciation, subject to some limitations with regards to prior use of property and related party transactions. The proposed regulations clarify what constitutes “prior use” that would make a used asset ineligible for bonus depreciation.
• Taxpayers with a basis step-up adjustment resulting from the purchase of a partnership interest from an unrelated party will be able to take bonus depreciation on their stepped-up basis attributable to partnership property that would otherwise qualify for bonus depreciation. It is unclear whether the floorplan financing limitations on bonus depreciation would prevent bonus depreciation on a taxpayer’s stepped up basis in a dealer partnership.
• The proposed regulations did not address a drafting error in the tax reform law with regards to qualified improvement property, which if not corrected, would not be eligible for bonus depreciation and would have a 39 year depreciation life. This error, if corrected, would shorten the depreciation period to 15 years, making qualified improvement property eligible for bonus depreciation.
• The luxury auto limitations still apply to automobiles used by the business, but with higher limits.

For more information, please contact:

Joe Magyar
813.209.2435
joe.magyar@crowe.com

Steven Janssen
813.209.2414
steven.janssen@crowe.com

The information is not – and is not intended to be – audit, tax, accounting, advisory, risk, performance, consulting, business, financial, investment, legal, or other professional advice. The information is general in nature, based on existing authorities, and is subject to change. The information is not a substitute for professional advice or services, and you should consult a qualified professional adviser before taking any action based on the information. Crowe is not responsible for any loss incurred by any person who relies on the information.

This material is for informational purposes only and should not be construed as financial or legal advice. Please seek guidance specific to your organization from qualified advisers in your jurisdiction.

The Ohio Bureau of Motor Vehicles (“BMV”) has made a unilateral decision to issue salvage titles to vehicles that do not meet Ohio’s definition of “salvage”. This decision was made without regard for the significant and detrimental impact to current owners, dealers, and prospective purchasers of used vehicles. The BMV’s policy requires the Clerk of Courts to issue a salvage title to any vehicle if sometime between 2009 and the present, a junk or salvage yard, salvage auction, insurance company, or similar entity reported the vehicle as a total loss, junk, or salvage to the national database for tracking titles, National Motor Vehicle Title Information System (“NMVTIS”). This reported data is more commonly known as “JSI” or “junk, salvage, and insurance information”.

The Registrar of the BMV has indicated that federal law requires this change in policy. The BMV fails to acknowledge that there is no federal mandate requiring that these vehicles be characterized as salvage. In fact, the opposite is true; the Department of Justice has publicly stated:

“Neither the Anti-Car Theft Act nor its implementing regulations require states to change the way they handle vehicle branding or other titling decisions. Although NMVTIS will include insurance, junk, and salvage data, and states will have unlimited access to such data, states are not required to take any action based on that data.”

For more information on JSI Reporting procedures, click HERE.

What Prompted the BMV’s Policy Change?

In December 2017, the BMV updated the Automated Titled Processing System (“ATPS”), which controls the title record in Ohio. A part of that update included accessing information reported by junk and salvage yards, insurance companies, and other third parties to NMVTIS when a vehicle was reported as junk, salvage, or a total loss (“JSI” or “JSI data”). Since 2009, federal law has required these entities to report JSI data to NMVTIS. JSI data may include a total loss resulting from an insurance company paying a claim for a stolen vehicle, or paying an owner the salvage value of their vehicle after an accident instead of paying to repair it. Therefore, many road-worthy vehicles are included in the JSI database.

The BMV’s new policy requires the Clerk of Courts to review the NMVTIS record. If JSI data is reported, regardless of whether the title has ever had a salvage brand in any state, the Clerk issues a salvage title to the owner.

Flawed Policy = Damage to Owners

OADA supports sharing information with owners and prospective purchasers so that they can make informed decisions about their vehicles. However, the BMV’s policy does not inform buyers of JSI information until after they purchase and attempt to title their vehicles. Owners, including our customers, buyers or sellers in the casual market, and dealers, are told that as a salvage vehicle, their newly purchased vehicle cannot be driven on the road or resold. The vehicle becomes worth no more than its scrap value. The BMV has not created any process for owners (dealers or consumers) to dispute the issuance of a salvage title.

The BMV’s policy is not supported by Ohio or Federal law and poses both a financial and a legal risk to dealers and consumers who attempt to sell these vehicles in the state of Ohio.

1. JSI definitions for junk, salvage, and total loss are very broad. In contrast, the Ohio definition is laser-focused on the vehicle’s actual condition. Ohio law defines a salvage motor vehicle as “any motor vehicle which is in a wrecked, dismantled, or worn out condition, or unfit for operation as a motor vehicle.”, ORC 4738.01
2. The decision to change the character of a title without prior notice to owners and prospective purchasers damages consumers and businesses economically and is fundamentally unfair. One goal of the federal law that requires JSI reporting states is to identify these vehicles to prospective purchasers.
   1. The BMV does not have the ability to proactively identify vehicles in Ohio or other states impacted by JSI data, so owners cannot be notified. Dealers and consumers will only find out about the JSI data after purchasing a vehicle and applying for title.
   2. JSI data is not reported by NMVTIS to all Vehicle History Reports (“VHR”). Only entities who pay for JSI data from NMVTIS can obtain it.
   3. Ohio law requires that the BMV provide motor vehicle title information to the public at no charge. Therefore, the BMV’s policy violates Ohio law because it fails to provide any information through the Ohio Online Title Inquiry, or any other online source, that would indicate that the vehicle will be issued a salvage title prior to the transfer of the vehicle.

OADA’s Position

OADA has strongly opposed the BMV’s policy since its implementation. Absent a statute or regulation, the BMV does not have authority to unilaterally issue salvage titles. As a direct result of our opposition, the BMV has subsequently filed administrative rules that attempt to codify its flawed policy. This is a positive first step since it requires a transparent process, involvement of all interested parties (including members of the Legislature), and a review of any adverse impact on business. OADA will be fully involved in this process.

Next Steps for Dealers?

While OADA continues pursuing a reasoned solution, dealers need to know what to do to minimize the risk of purchasing and selling vehicles that have a JSI designation. In the interim period, dealers need to consider accessing JSI information to better inform their purchasing decisions. OADA recommends contacting your vehicle history report (“VHR”) vendor to determine if this data is included in its reports. Some vendors purchase NMVTIS history reports and incorporate them into their VHRs. Others may include information regarding stolen vehicle, accidents, or reports from insurance companies regarding vehicle condition. Review these indicators carefully when making decisions about purchasing inventory.

If you have any questions or concerns, please contact OADA legal counsel, Sara Bruce or Matt Chacey. Sara can be reached at (614) 923-2243 or sbruce@oada.com. Matt can be reached at (614) 923-2232 or mchacey@oada.com.

Over the past several years, callers have increasingly used a technology known as “ringless voicemail” or “direct-to-voicemail drops” to contact consumers.  The technology allows companies to deposit recorded messages directly into a consumer’s voicemail (on the carrier’s server) without causing the consumer’s phone to ring.  The consumer receives only an indicator that a voicemail is ready to be retrieved.  Several companies provide ringless voicemail services and market them as a cheap and efficient way to supplement businesses’ outreach efforts.

Proponents of ringless voicemail services argue that they are outside the scope of the TCPA because: (1) the messages are not delivered to consumers’ cell phones; (2) the message waiting indicator is not a call or text message; and (3) voicemail is an “enhanced information service,” which is not regulated by the FCC.

Until recently, no court had expressly addressed whether ringless voicemail messages are within the purview of the TCPA.  In a case of first impression (Saunders v. Dyck O’Neal), the Western District of Michigan rejected the arguments outlined above and held that the messages are prerecorded “calls” governed by the TCPA.  According to the court, the TCPA is a remedial statute that “naturally evolves in parallel with telecommunications technology as it evolves.”  The court cited text messages and email-to-text messages—both interpreted as “calls” under the TCPA—as examples of new technologies governed by the TCPA.  It also relied heavily on public policy considerations to ensure its interpretation did not “elevate form over substance” and “thwart Congressional intent” by opening a floodgate of unwanted voicemail messages to consumers.

Saunders represents only the first court opinion on ringless voicemail messages but it demonstrates the risks associated with using the technology to contact consumers without the requisite level of consent.

Nick Whisler is a partner at Mac Murray & Shuster LLP, where he brings more than a decade of experience helping clients in highly regulated industries comply with federal and state debt collection, telemarketing, privacy, and other consumer protection laws. Nick brings a particular depth of experience related to TCPA compliance and has written and presented extensively on its complex set of regulations and interpretations. He serves as Associate General Counsel to the Professional Association for Customer Engagement (PACE).