Newsletter - Fall 2003
Setting Up a Lease Company Will Reduce or Eliminate Single Business Tax
by Edward J. Castellani
Dealers interested in reducing or eliminating their Single Business Tax should consider forming an employee lease company. A lease company is a separate corporation that would employ all dealership employees and lease them to the dealership. According to the Michigan Treasury Department rules, the Lease Company cannot be owned by the dealer, so someone other than the dealer must own the Lease Company. If properly set up and operated, the dealership can reduce or even eliminate the dealership Single Business Tax.
Once the Lease Company is formed, the dealership and the Lease Company enter into an Employee Lease Agreement that will contain all the terms of the Lease. The dealership will pay all wages, payroll taxes, insurance, pension, and all other employee expenses through a lease payment to the Lease Company. The Lease Company will use the lease payments to pay all employee costs. The total employee costs to the dealership will not increase.
Since the dealership no longer has any employees, it will not have any compensation expense to add back to its tax base on the Single Business Tax return. This will result in lower tax and may qualify the dealership to receive the Small Business Credit to further reduce Single Business Tax. A dealership can have more than one Lease Company if necessary to further reduce the Single Business Tax.
Some Michigan dealers have been utilizing an employee lease company for years and have enjoyed significant savings on their Single Business Tax return. Dealers interested in discussing the benefits of an employee lease company should contact Edward J. Castellani.
Mr. Castellani is a member of our Business Department. He practices in the Lansing office and may be contacted at 517.377.0845 or toll free at 800.748.0436. You can also contact him via e-mail at ecastellani@fraserlawfirm.com.