US tax laws allow a buyer such as a health care consultant to write off $US32,000 of the purchase price $47,000 of a giant Ford Expedition as a business expense while prospective purchasers of fuel-efficient hybrid vehicles qualify for a relatively small $4,000 tax credit, the Detroit News said on Wednesday.
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A deal to extend similar tax credits to other environmentally friendly vehicles remains stalled in Congress, the newspaper added.
The Detroit News said the tax write-offs and rebates are all legal, and US accountants and car dealers are beginning to catch on.
“If it can save the consumer money, it’s most likely that the dealer is going to know about it,” National Automobile Dealers Association spokesman Andrew Beck told the Detroit News’ Washington bureau.
So far, the newspaper added, there is no indication anyone in the US Congress wants to close the loophole and, in fact, even higher depreciation tax breaks are “on the table” as part of the next round of tax cuts President Bush is planning.
The Detroit News said the SUV tax break is “becoming a staple of advice in the accounting world”, as small business owners are advised on ways to reduce end-of-the-year tax bills.
The newspaper said the size of the tax break has been growing under a schedule that became law in 1996, when Congress changed tax law to encourage business investment, but the scale of the tax break now surprises accountants and tax experts, who feel bound to recommend SUVs and other light trucks to small-business clients.
The Detroit News said the tax break seems to contradict the national goal of improving vehicle fuel efficiency and added that the total cost of the loophole – to all tax payers – hasn’t been calculated by the government.
The newspaper cited a nonpartisan Washington watchdog group, Taxpayers for Common Sense, as estimating that the SUV tax loophole could cost taxpayers between $840 million and $987 million for every 100,000 vehicles sold to businesses.
According to the newspaper, the group’s programme director Aileen Roder questioned whether there is a national need to subsidise sales of the largest light trucks — given that Americans are buying SUVs in record numbers anyway.
There are long-standing limits on deductions to prevent US taxpayers from subsidising luxury-car purchases, the Detroit News said, but the limits do not apply to 38 light trucks that weigh 6,000 pounds or more, including the Cadillac Escalade, Dodge Durango, Excursion and Lincoln Navigator.
“We recognized it immediately and started informing people about how to use it,” accountant James Jenkins told the newspaper. “It’s just fabulous. My clients have been drooling.”
The Detroit News said Congress in 1996 estimated the five-year cost of the tax break, for all business equipment, to be $1.6 billion – “at a time when luxury SUVs had barely cracked the market”.
Internal Revenue Service (IRS) spokesman Bruce Friedland told the newspaper that the agency does not keep data on how much the tax break has cost but Autodata figures showed 3.8 million of the 6,000-pound light truck models were sold in 2001.
There are no estimates for how many of the vehicles that qualify were sold to businesses or how many businesses that bought vehicles took advantage of the deduction, the Detroit News said.
The code is not as generous for luxury cars, the newspaper added.
Tax experts told the Detroit News that the light-truck tax loophole was originally targeted for farmers, so their working pickup trucks would not be treated, for tax purposes, like luxury cars.
