Dealers, drivers riding high on SUV tax loophole
Now may be the time to act if you're interested in the convenience, versatility and tax breaks that heavy SUVs offer.
- Bob Trinz
Just when I'd begun to think that the Bush Administration and Congressional Republicans couldn't possibly become any more craven and cynical, I run across this. I can understand the desire to implement policy designed to have a positive effect on the economy, but this is little more than a naked attempt to bolster the fortunes of luxury SUV makers and the generally higher-income folks who drive them.
WASHINGTON -- When Congress this year decided to allow small-business owners, doctors, lawyers and real estate salespeople to deduct up to $100,000 from their taxable income for the purchase of luxury SUVs, Texas car dealer Jerry Reynolds could hardly believe his good fortune.
"It's a loophole," his ads proclaim, "and this weekend, we can show you how to make that loophole big enough to drive a fleet of trucks and sport utility vehicles through it!"
The "SUV loophole" once seemed to be just a quirk in the tax code -- deplored by environmental activists but ignored by most everyone else. Now it is shaping up to be a marketing bonanza for financial planners, accountants and auto dealers eager to snap up commissions and drive up sales of heavy vehicles, ranging from workhorse Ford F-250 pickup trucks to elite Hummer H2s, BMW X5s and Mercedes-Benz ML55s.
A similar tax break, in fact, is long-standing, although more limited. Since 1997, anyone deemed to be a small-business owner for tax purposes could write off some amount of equipment purchases each year -- up to $18,000 worth that first year and up to $25,000 in 2003. Since 1984, the Internal Revenue Service, thinking more about Chevy Silverado pickups than Cadillac Escalades, has considered vehicles that weigh more than 6,000 pounds to be deductible business equipment.
When lawmakers began writing this year's $350 billion tax cut plan, they looked for ways to help the economy by encouraging small businesses to invest in new equipment, which could include computers, rotary saws or photocopiers. Congress raised the maximum annual value of the deduction to $100,000, through 2005. At the time, environmentalists implored tax writers to disqualify SUVs, but lawmakers declined. With the top business tax rate at 35 percent, Washington effectively cut $18,900 from the price of a $54,000 Escalade, bringing its cost more in line with an Oldsmobile Aurora sedan.
The windfall is starting to get notice.
To get the full write-off, the vehicle is supposed to be used full time for business purposes.
As long as it is used more than half the time for business purposes, its owner can deduct some of its purchase price -- say, 75 percent for a Chevy Suburban used 75 percent of the time for business.
"For the rest of us mere mortals, it's just something else to be annoyed at," said Ric Edelman, chairman of Edelman Financial Services in Fairfax, Va.
So many new models are just over 6,000 pounds that Reynolds suspects that automakers have their eyes on the tax code. A 2003 two-wheel-drive Dodge Durango weighs 6,050 pounds.
The purpose of federal tax policy, whether intentional or otherwise, should not be to provide a subsidy to the makers, dealers, and owners of luxury SUVs. No matter how Republicans will try to justify this loophole, it's just plain wrong. If you're going to provide a tax break, how about taking care of single parents, or some other group that deserves assistance- unless of course, you're a Conservative and you truly believe in government by, for, and of rich white folks.
