To stimulate the economy and the car industry, President Barack Obama announced two months ago that anyone who purchased a new car during the 2009-10 tax year could deduct the sales tax from the purchase from next year’s taxes.
“Anyone considering buying a new car will find that there has never been a better moment to do so due to this tax incentive,” said Sara Eguren, an Internal Revenue Service (IRS) spokesperson.
However, IRS policy and bank lending has limited the effectiveness amount that this car sales tax deduction will have in stimulating the sale of new cars. The banks continue to hold back from lending, the sales tax does not apply to used or leased vehicles and the IRS has put an income cap on the eligible tax filers so that the deduction does not apply for high earners.
“Personally we have not seen an uptick as a result of the sales tax,” said Bruce Bendel, president of Major Auto World in Long Island City. Major World, founded in 1957, sells both new and used cars. “My analysis on this is that they should have changed the income requirements but they put a cap on salary. And those making under the cap are not getting credit even if they have higher credit scores.”
Currently, to qualify for the sales tax deduction, a person must purchase either a new car, light truck, motorized home or motorcycle between February 17 and December 31, 2009 of up to $49,500 and file for the deduction in their 2009 tax forms. The deduction phases out for individual tax filer whose modified gross income is between $125,000 and $135,000, and for joint tax filers whose modified income is between $250,000 and $260,000.
“It’s a shame because what I would have liked to see, is that anyone [who] could have bought a car this year could have deducted the sales tax. They could have put in the salary cap next year,” said Bendel.
But in addition to the salary cap, tax filers can only deduct the sales tax on a specific range of new cars – lightweight, usually family size – compared to commercial vehicles.
And if you sell commercial vehicles like Peter Wong does at DiBlasi Ford, the deduction won’t bring people in the door.
“I have not seen sales increase and actually sales have reversed,” said Wong, manager at the 75 year old dealership in Corona. Wong said that in April 2008 they had sold about 30 vehicles. So far this April, they had only sold three. “Every day you open the paper and people are getting laid off. People are skeptical about spending money on large items.”
Another factor that could keep people from splurging on a new car is that the deduction does not apply to leased vehicles because, under current state tax laws, the sales tax on car leases are already deductible. But that is if you can get a lease. “General Motors and Chrysler [are] not offering leases because banks are not leasing,” said Bendel of Major World.
“But who knows how to calculate all this? It’s an education process. Now who knows how the process is handled? An accountant?,” said Bendel, adding that he has told his dealers to educate consumers on the new tax policy, which he said hasn’t been marketed effectively by the government despite Obama’s mention during a press conference.
“We pride ourselves in educating consumers in what they need to know because after a house, it’s the second biggest investment for a consumer,” Bendel said.
