Introduction
A federal tax law, originally intended to assist farmers
and business owners requiring light trucks or vans in their
workplaces (see Section 280F(d)(5) of the Internal Revenue
Code of 1986), can be exploited by any business that purchases
one of 38 gas-guzzling SUVs that are 6000 pounds or heavier
(as SUVs grew in size, they eventually met the weight minimum
needed to meet the requirements for the tax break). According
to Taxpayers for Common Sense, this light-truck loophole
costs the federal government between $840 million and $986
million yearly.(1)
Since most states follow federal tax code, businesses can
also receive state tax breaks. The 1986 federal bill language
allowed for a business to deduct up to $25,000 from their
taxable income. President Bush’s 2002 economic stimulus
package added a bonus deduction allowing business owners
to also expense 30 percent of the difference between the
purchase price and the $25,000 cap. Last May, the passage
of the Jobs and Growth Act increased the cap to $100,000
and the bonus deduction to 50 percent.
A qualifying buyer can now deduct $106,000 of the suggested
$110,000 price of a Hummer H1 SUV ($100,000 direct deduction
plus $5,000, or 50 percent of the $10,000 balance, and $1,000,
which is the first year of depreciation for the $5,000 balance).
That would translate into a $37,100 savings on the purchase
price if the taxpayer were in the 35 percent income-tax
bracket.(2) Not all states have
adopted the new caps, but those that have are still losing
valuable tax dollars through the loophole.
Clearly some businesses should still qualify for the tax
break. The original federal bill’s intent was to give
the tax break to business owners and farmers requiring a
light-duty truck or van. The language of a proposed bill
in California, AB 848, closes the loophole for all businesses
except certain farms, and timber and construction companies.
The bill recently died in Assembly – some of its critics
argued that it should be up to businesses to decide what
vehicles they need. This may be true, but states need to
ask themselves if offering large incentives for purchasing
vehicles that are proven to be unsafe and inefficient is
responsible public policy. Allowing this loophole to exist
violates legislative intent and effectively rewards businesses
for driving dangerous, highly polluting vehicles.
For information on safety issues and environmental impacts
associated with SUVs, see SERC’s State Activity page
on State
and Municipal SUV Fleets.
For more information on how your state can help the environment
and the bottom line at the same time, see SERC’s Policy
Issues Package on Fiscal
Issues.
State Actions
Maryland
SB
219, titled “SUV Business Tax Loophole Closure
Act,” was introduced at the end of January 2004. The
bill language amends Maryland tax law such that SUVs weighing
6000-14,000 lbs. would no longer qualify for the business
tax break.
California
Although AB
848 died in Assembly(3),
it would have closed the SUV tax loophole in California.
The bill still allowed for most farm, timber, and construction
businesses to receive the deduction. The proposed legislation
also granted a $1000 tax credit to buyers of certain types
of reduced-emission vehicles.
Oregon
HB
2747 proposed closing the SUV tax loophole at the state
level.
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