Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board

Part 3
Stand Alone Issues
Chapter 14
Advertising Associations
Introduction
The Stand Alone Issues incorporated into this text are the ones that are considered to be most
relevant. This is not to imply that there are no other issues that can be discussed. Inherent in the
"Living Document" process is the need for others to extend the scope of the discussion set forth
in this Guide.
Advertising Associations
An advertising association is a separate entity whose main purpose is to obtain effective
advertising beneficial to all of its members. The activities of such associations are a catalyst for
sales of manufacturers, dealerships and auto centers.
An association typically takes three forms, all of which operate by using primarily dealership
funds. Dealerships deduct their payments to the fund as advertising expense or, in some cases,
cost of goods sold. The association will use the funds at some future date to advertise on behalf
of the group members. The three forms are:
1. By make
As a part of their franchise agreement, most dealerships are required to participate in an
advertising association. Amounts for this expense may be stated on the face of the vehicle
invoice. Thus, stated advertising charges are expensed by the dealership when the automobile
hits the flooring account. These funds are used by the advertising association for both local
and national purposes.
According to the dealer agreement with the manufacturer, the dealership is required to join the
advertising association. The dealerships are members which own the corporation. The
advertising association may be a "non-profit" organization and as such there are no shares of
stock issued. The corporation is operated by a Board of Directors. This Board decides how
the funds are to be spent and usually meets every quarter. The Board is made up of dealership
owners. They are voted in by all the association members. The amount charged for
advertising from each invoice can be a flat amount or a percentage of the purchase price of the
vehicle including options. The amount is set by the association and/or manufacturer.
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