Most retailers, including car dealers, are unaware of the PATH Act and how it affects their business. Protecting Americans from Tax Hikes was a law passed by Congress in 2015 and took affect beginning 2016.
Obviously, no one likes tax hikes, so why is this law bad news for the auto industry? Well, with the passing and implementing of this new law, most taxpayers who are eligible to receive certain tax credits will continue to wait until the end of February before seeing any tax refund money. The PATH Act requires the IRS to hold most tax refunds until after Feb. 15.
So How Does the PATH Act Affect My Dealership?
Last year on Feb. 23 and 24, 90 percent of all tax refunds were released during these two days, making it the largest refund release in U.S. history. The problem was that not all dealerships had the time, staff or inventory to capture these potential buyers with the 48 hours given. Tax season had shrunk to only two days.
Back in the good old days, taxpayers would file their tax returns as they normally would do each year, then wait the usual seven to 10 days to receive their full refund check and proceed immediately to the nearest car dealership to make a purchase. This type of scenario would run its course day after day from mid-January through the end of April. Each day, several new customers would visit the car lot with money to spend in this lovely three-to-four-month window car dealers dubbed “Tax Time.” Now, the PATH Act has reduced your “Tax Time” window into a measly two days.
What Can My Dealership do to Combat the PATH Act?
Working with a tax partner or enrolling with a tax season promoter can help dealers capture these important tax season sales.
Simply put, a tax partner will file your customer’s tax return for free and then forward the refund directly to your dealership as a down payment. Partnering dealers can advertise promotions such as, “File your taxes for free and, we will double your down payment.”
Some tax partners will offer a “Refund Advance” option that allows a customer to receive a portion of their refund within hours the same day they file. This program allows customers the ability to access their refund before the IRS officially releases it. This year, the Refund Advance program is expected to begin funding Jan. 2, which is eight weeks before the first expected IRS PATH Act funding.
Don’t forget about your prior lost sales. The No. 1 reason holding your sales team back is down payment. Contact your previous turndowns from the past 30-60 days. Chances are they may be receiving a large tax refund. These are customers who want to do business. Get on the phone, reach out, tell them all the exciting things you are doing this tax season.
With the recent passing of the “Tax Cuts and Jobs Act of 2017,” Forbes magazine predicts refunds will increase by 26 percent in 2019. Many taxpayers could receive hundreds, if not, thousands of dollars more in their refund check. This is great news, but when is this money hitting the streets? Because of the PATH Act, not until the end of February, unless you find a tax season partner. Chris Neylan