Looking for a real bargain
on that shiny new SUV? Forget the zero-percent financing, instant cash rebates
and free round-trip air fares. This year's biggest sports-ute incentive comes
courtesy of Uncle Sam.
No, the government won't help you shave
the sticker price. But if you select for business use one of light-truck models
weighing more than 6,000 pounds fully loaded, a new tax loophole lets you write
off a hefty piece of the purchase price on your income taxes.
to tax legislation enacted over the last couple of years, buyers of business autos
now can deduct up to $100,000 of the purchase price of eligible
vehicles. If you shop carefully and are willing to haggle, you might be to
write off the full price a nicely-equipped SUV.
There are a couple of requirements. First, the
vehicle has to meet the weight standard. More importantly, it must be used for
business, not personal, travel. The deduction is claimed as a Section
179 expense, meaning you must be in business, filing a Schedule C or corporate
tax return, to claim it.
Even though these vehicles produce
bigger gas bills, some business people may find the choice easy. When you compare
either the existing or proposed tax incentives to the paltry $7,660 initial deduction
allowed for cars and smaller SUVs or the stingy $2,000
for fuel-efficient hybrid cars, you and your accountant may wonder the same
thing: Have you driven a Hummer lately?
The original intent of the measure was to
enable small farmers and other self-employed workers to buy a new truck or van
without being dinged for the luxury car tax (which has since expired). At the
time, it made perfect sense to exempt these heavier vehicles based on weight.
After all, trucks and vans were far from status symbols, and early SUVs came nowhere
near the three-ton loads they pack today.
The size of the loophole increased
from $17,500 in 1996 to $20,000 last year, before being bumped to its new level.
Federal lawmakers, however, are taking another look at the size of this tax break.
A bill now in Congress, S. 1637,
contains a provision to shrink the tax deduction for large SUVs from $100,000
back to the $25,000 level. The larger write-off would continue for certain business-use
heavy trucks or vans, such as refrigerated trucks.
of the law follows the change in America's driving habits. As super SUVs became
the automotive status symbol of the new millennium, doctors, accountants and well-heeled
professionals of every stripe helped themselves to the tax break originally designed
to aid struggling family farmers.
"We definitely agree
with continuing the tax break for small businesses that actually need it, but
we don't think we should have law firms doing a latte run for the office in a
massive SUV," says Aileen Roder, program director for Taxpayers
for Common Sense, a Washington watchdog group. "Unfortunately, the market
has outgrown the tax loophole. That loophole needs to be closed."
the government doesn't quantify the SUV tax break, TCS estimates the cost of the
loophole to taxpayers at between $840 million to $987 million for every 100,000
vehicles sold for business use. Those figures would skyrocket if the cap were
raised to $75,000.
Compare that to the in-kind cost of tax
to reimburse teachers for classroom supplies ($250 million), encourage investing
in individual retirement accounts ($90 million) or help small businesses comply
with the Americans with Disabilities Act ($525 million) and it's easy to understand
why watchdog groups are crying foul over the extravagant, albeit legal, application
of the statute.
In a white paper, TCS proposed reclassifying
the heavy SUVs from industrial vehicles to passenger vehicles and placing them
under the tax code's normal depreciation schedule for business.
have no problem with SUVs per se, but it's not a market that needs stimulating.
They are flying off the lot," says Roder. "We don't need to be using
the tax code to boost sales."
Would Jesus Drive?"
The tax break
is a relatively minor point in a far hotter and broader debate over the moral
and even spiritual ramifications of owning an SUV.
luxury vehicles have recently come under attack by the Evangelical Environmental
Network's "What Would Jesus Drive?" campaign and journalist Arianna
Huffington's Detroit Project which links SUV driving to supporting terrorism.
Even Dr. Jeffrey Runge, head of the National Highway Traffic Safety Administration,
says SUVs are so unsafe that he wouldn't let his family ride in one "if they
were the last vehicles on earth."
Ed Hunt, editor in chief
a news organization that tracks environmental issues, says buying an SUV for your
business is at best penny-wise and pound-foolish.
not really smart business," he says. "If I'm getting 15 miles to a gallon,
that's twice as much money out the door as if I'm getting 30. Some of these vehicles
get as low as 11 miles a gallon. If you're any kind of businessman, making a purchase
that increases your monthly expenses just doesn't make any sense."
who owns an SUV, says that the tax break is in direct contradiction to the Bush
administration's goal of cutting U.S. dependence on foreign oil. He says we could
have been off the stuff years ago if the government had provided similar tax incentives
to switch to fuel-efficient vehicles. Even President Bush drives a natural gas
Ford truck on his Texas ranch, he notes.
technologies are there, but there hasn't been the investment made in it that we
make in subsidizing the oil and gas industries," he says. "President
Bush's proposed $1.5 billion for hydrogen is approximately the advertising budget
for the SUV in the United States on a yearly basis. It really is very, very little
in terms of money."
Hunt says the time is right to shift
the tax break from gas hogs to gas misers.
"We know the
demand for oil is going to increase. The American Petroleum Institute says look,
oil is going to get more expensive in the future and when it gets too expensive,
people will switch to alternative power sources. It's not like this isn't conventional
wisdom. But the sooner we start investing in that future, the more chance we will
have to profit from it rather than have some other country make the investment
and then sell us the technology later down the road. We would much rather be an
exporter of clean energy technology than an importer."
Cedergren blames the whole convoluted SUV debate on Jerry Ford. That's right,
former President Gerald Ford.
In 1975, Ford signed into law
the Corporate Average Fuel Economy (CAFE) legislation. The legislation's good
intentions aside, it made those same farm trucks exempt from new, tighter fuel-efficiency
"That concept was great for the mid-'70s,
but the federal government should have been watching trends, because what it did
was push personal-use sales from cars to trucks," says Cedergren, an analyst
for NexTrend, which works closely with the auto industry. "People still like
big vehicles with big V-8 engines, and it was getting increasingly difficult to
get them on the car side. CAFE gave a favorable bias toward trucks.
CAFE was never imposed or if it were equalized between car and truck, we wouldn't
have the situation we have today."
not taxes, lure boomers
the very idea of a tax incentive setting off a stampede of SUV buyers is just
"The fact is, there is no impact whatsoever.
People buy SUVs, especially the high-end ones, because of fashion. It's all about
fashion, it's all about image. Their decision to buy an SUV over a Mercedes Benz
passenger car is not driven by a tax incentive," say Cedergren.
mitigates the whole argument, too, is that so many people lease the vehicles that
we're talking about. That tax incentive really goes away when you lease. It only
affects the purchase."
The auto industry today is being
driven by a higher percent of affluent buyers than ever before, according to Cedergren.
Despite the prediction of some of the best minds on Wall Street, the children
of the baby boom continue to purchase luxury vehicles at a record pace, with BMW
and Mercedes Benz celebrating the best January-February period in history.
SUV consumer has been groomed under a high standard of living and basically expects
to get whatever he wants whenever he wants it. It's hard to change behavior after
it has been programmed into you for 25 or 30 years. Even if your stock portfolio
goes down 40 or 50 percent, you're going to justify in any way you can to go out
and continue spending because it's the only thing you know. You don't know how
to sacrifice. You don't know how to do it."
Would it be
safe to assume that the current uproar over SUVs doesn't overly concern industry
"We use it for comic relief," Cedergren
Jay MacDonald is a contributing
editor based in Florida.
-- Posted: Dec.