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Lease-Here-Pay Here Turn-Key Program

Increase cash flow with the Lease-Here-Pay-Here (LHPH) Turn-Key Program. No upfront sales tax in most states, and the LHPH down payment can be a security deposit, reducing income tax. Build a profitable and sustainable business even during weak demand periods.

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Lease-Here-Pay Here Turn-Key Program

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  1. Lease-Here-Pay Here Turn-Key Program Presented by Arceri & Associates, Inc

  2. PRINCIPAL LEASE ADVANTAGE • Increased CASH FLOW! • No UPFRONT sales tax in most states • LHPH down payment can be a security deposit eliminating income tax • No sale, therefore no “gain on sale” profit recorded, so no income tax • Build profitable business sustainable through weak demand periods. • On a typical $4,000 cost vehicle sold for $8,800, AFTER TAX CASH INCREASE > $1,300

  3. BHPH Sale vs. LHPH Cash Flow Comparison Assumptions: Acquisition Cost $4,000 Sale price / Cap Cost $8,800 RFC Discount 35.00% Down payment/security deposit $1,000 Income tax rate 40.00% Sales tax rate 7.00% ”Related Finance Company.” To reduce the income tax liability on the “gain on sale”, typically the dealer establishes a wholly owned “Related Finance Company” to which the vehicle can be sold at a loss. However, the discount rate in the sale must reflect the true market value and cannot create a tax loss.

  4. BHPH Sale vs. LHPH Cash Flow Comparison – Cont’d LHPH Cash Calculations: Flow Savings Initial Sales Tax $ 616 $ 616 Sale Price to RFC $5,720 Profit on RFC Sale $1,720 Income Tax on RFC Sale $ 688 $ 688 Total After Tax Cash Savings $ 1,304 (Only 100 vehicles) x 100 $130,400 200 vehicles - $260,800 Savings 300 vehicles - $391,200 Savings

  5. Security Deposit vs. Capitalized Cost Reduction • Capitalized cost reduction (down payment) is taxable on sales tax, and federal and state income tax • Security deposit is non-taxable on any level and can be used to reduce tax exposure and increase cash flow • Security deposit can be used for default, excess mileage/wear or for repairs/maintenance

  6. State Sales Tax Options • Monthly on payments collected: 33 states • Upfront on Capitalized Cost (similar to sale): 9 states (CO, IL, MT, NC, SC, TX, VA, AL*, DE*) • Upfront on monthly payments: 6 states (IO, ME, ND, NY, OH, SD) • Upfront on depreciation: 2 states (NJ, VT) • * Both on cap cost and monthly payments

  7. Acceleration of Accounting Income • Accounting rules (FASB 13) allow LHPH to be treated as a • “sale” for accounting purpose even though a lease is (not a • sale) for tax purposes. • Sales-type lease (“capital lease”) recognizes full mark-up as upfront profit • HUGE acceleration of income • Full $4,400 mark-up is immediate income with NO TAX LIABILITY

  8. Acceleration of Accounting Income (cont.) • BHPH sale: finance books are SAME as tax books • LHPH lease: finance books have ACCELERATED INCOME while tax books have tax deferral from accelerated depreciation • Banks and finance companies have used this tax deferral advantage • More conservative income recognition is an option (Operating Lease treatment)

  9. Advantages of Leasing(cont.) • No loss of prepaid sales tax on defaults (in most states) • Eliminates the need for an Related Finance Company • Better control of vehicle (e.g., increased security deposit for excess mileage during the lease) • Greater flexibility in program design (e.g. early termination, collateral substitution, vehicle maintenance and repair)

  10. Advantages of Leasing (cont.) • Bankruptcy protection • Reduced customer disclosures • Reduced State and Federal regulatory requirements compared to Reg. Z and MVRISA on sales • No APR or Reg. Z disclosure • No usury limits • “Safe harbor” of federal regulations avoids state RTO laws and AG animosity

  11. LHPH Implementation You Receive: • Program Handbook on all policies and requirements including residual values • Lease agreement + all forms/documents • Marketing plan • Sales system, training and collateral • Accounting system selection and implementation • Insurance selection and purchase • Accounting and tax guidelines • Legal and accounting compliance review

  12. LHPH Implementation – cont’d You Receive: • Lessors Contingent Liability Insurance • Independent Insurance Tracking • Physical Damage Insurance to protect your collateral • Payment Assurance / Asset Tracking – Codeless, Starter Interrupt, GPS & payment reminder

  13. Cost of Program – Option #1

  14. Cost of Program – Option #3

  15. Getting Started Complete & Sign the LHPH License Agreement Complete & Sign the Lessors Contingent Insurance Application Complete & Sign the Physical Damage Insurance Set-Up Form Arceri & Associates (504) 309-3087 www.arceri-insurance.com arceri@live.com

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