Archive for Sunday, January 18, 2004

Vehicle tax deduction fuels interest, concerns

Opponents claim small-business owners are getting free rides from Uncle Sam

January 18, 2004


— If Alex "Bud" Dahlgren hadn't recently discovered an obscure -- and controversial -- business-tax deduction, he might still be banging around Dallas in a midsize Ford Explorer.

Instead, he arrives these days at his high-end-home remodeling jobs in a new Ford Expedition, a full-size sport utility vehicle that he says better suits his needs.

"You cannot sell people $100,000 kitchen remodels in a little Nissan pickup -- especially in Dallas," said Dahlgren, 47, owner of Acheron Construction. "The way I use my vehicle is I take it to appointments, I pick people up at their homes, and we go from one place to another to look at samples and building material. There also are a lot of things I carry around in the back of the vehicle that I couldn't leave in a pickup."

Thanks to Section 179 of the 2003 Tax Act, Dahlgren was able to acquire a bigger SUV. The bill, which proponents say was intended to spur small-business capital investment, permits the owners of new and used full-size pickups, SUVs and vans to deduct up to 100 percent of the cost of their vehicles in the first year that they put them into service. The cap is $100,000.

"If you have some kind of small business and are buying one of these trucks, you can take automatic advantage of this," he said. "I realized that it made sense to get an Expedition."

Opposition abounds

The deduction hasn't significantly spurred sales since the tax act was signed into law May 31, in part because businesses are only slowly learning about it. It could spur a mini-boom at the end of the year as businesses look for write-offs. The deduction -- which is supposed to run through 2005 -- could be short-lived, though.

A number of taxpayer groups and environmentalists oppose it. Some contend that the bill allows affluent lawyers and doctors to deduct the entire cost of their luxury SUVs from their taxes. Others argue that it encourages more people to buy gas-guzzling vehicles. They are lobbying to reduce the deduction.

"You've got lawyers and doctors using these vehicles for latte runs," said Aileen Roder, program director of Taxpayers for Common Sense. "At a time when we have skyrocketing deficits, should we have a deduction like this?"

In the past, the tax code permitted business owners to deduct up to $25,000 of a vehicle's cost in the first year and the remainder during the following four years. Last spring, the Bush administration proposed raising the amount to $75,000 and -- as an economic stimulus -- accelerating the depreciation to make the entire amount deductible in the first year. The Senate raised the cap to $100,000.

The deduction applies to all pickups, sport utility vehicles and vans with a gross weight of 6,000 pounds or more, which is the weight of the truck plus its passengers and cargo capacity. If a truck, for example, weighs 5,000 pounds and can carry 1,000 pounds or more, it qualifies.

Changes in the tax code prompted Alex Dahlgren, Dallas, to buy a
new Ford Expedition for his home-remodeling business. Proponents of
the bill say it was intended to spur small-business capital
investment. Opponents say the bill allows the wealthy to deduct the
entire cost of luxury SUVs from their taxes.

Changes in the tax code prompted Alex Dahlgren, Dallas, to buy a new Ford Expedition for his home-remodeling business. Proponents of the bill say it was intended to spur small-business capital investment. Opponents say the bill allows the wealthy to deduct the entire cost of luxury SUVs from their taxes.

Virtually all big trucks -- from large pickups to Expeditions, Suburbans and Hummers -- are eligible. The trucks must be used for business purposes 100 percent of the time to take the full deduction. Trucks that are used less -- say, 50 percent for business and 50 percent as personal transportation -- should qualify for a 50 percent deduction, officials say.

Boost for auto industry

Car dealers and automakers support the measure. They say the industry needs all the help it can get in these sluggish economic times -- particularly in moving trucks that typically cost $30,000 or more.

"What this is attempting to do is assist small-business investment -- which is the engine of job growth in the U.S. -- at a time when that investment is extremely low," said Paul Taylor, chief economist of the National Automobile Dealers Assn. "And it seems to have accomplished that."

Though many consumers -- and some accountants -- remain unaware of the so-called SUV tax deduction, some in the industry say it already has a high political profile.

"I've got to think in the Northeast and Northwest, as word gets out, people are going to start putting heat on their legislators to vote against it," said Jerry Reynolds, managing partner of Prestige Ford in Garland and owner of Prestige Lincoln Mercury and Prestige Mazda in Dallas. "I believe President Bush will keep it as long as he can. But I think the Democrats will grab this as an example of what the Republicans are doing for the rich."

Reynolds has a Saturday car-talk show on WBAP-AM, the Jerry Reynolds Auto Advice Show. Every time he mentions the tax deduction, he says, he gets a huge response.

"I probably get 25 to 30 e-mails on this subject after every show," said Reynolds, who spent weeks compiling information on the deduction for his Web site, "Nothing has even come close to it in the 2 1/2 years I've been on the radio."

Some of that interest serves Reynolds and other dealers well -- Prestige Ford, for example, is one of the nation's largest sellers of full-size pickups and SUVs. But Reynolds' Web site also lists full-size trucks from other manufacturers that may be eligible for the deduction and contains background information on the deduction.

"This isn't the end-all or be-all as far as deductions," he said. "But if you're going to write a check to the government for 2003 taxes and you're in the market for one of these vehicles, you'd be crazy not to do it."

Through November, overall pickup, SUV and minivan sales were up 3.6 percent for the year, said Taylor of NADA. Some of that may be attributable to the deduction. In November, he noted, sales of large luxury SUVs increased 40 percent, which is probably tied partly to the deduction.

"Business spending on trucks is coming back and would have come back anyway," he said. "But this has helped."

Opinions mixed

With a projected $500 billion U.S. budget deficit this year, however, Taxpayers for Common Sense says the country can't afford such a generous deduction.

"We are not advocating an anti-business stance," said Roder of Taxpayers for Common Sense. "But we do believe we need to close the loophole, and knocking it down to $25,000 would be a good move in the right direction."

Rod Anthony, a Dallas mechanical contractor, might not think so. He recently bought a 2003 Ford F-150 crew-cab pickup, partly because of the truck deduction. Anthony said the truck deduction was one of the best tax tools available to small-business people, and he often tells colleagues about it.

"They are nervous about using it because it seems too good to be true," he said. "You know the big car manufacturers were probably involved in this. But, hey, what a great deal for them and us."

The truck deduction is one of the last large write-offs that small businesses can take, said Dahlgren, the home remodeler.

"This is not a bunch of fat cats taking advantage of the American people," he said.

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