By Jeff Plungis / Detroit News Washington Bureau
http://www.detnews.com/2003/autosinsider/0305/16/b01-166503.htm
WASHINGTON -- A tax loophole that small business owners have increasingly used to finance the purchase of large SUVs is about to get dramatically larger.
Under a major tax package going through Congress, a deduction for small business equipment purchases -- now capped at $25,000 -- is set to go up to as much as $100,000.
The business equipment deduction was included in a $350 billion tax-cut plan the Senate passed last night. The House passed a $550 billion bill last week. The small-business provision has President Bush's blessing, virtually assuring that the tax break would become law.
A growing number of small businesses are using the new equipment write-off to purchase luxury SUVs at a deep discount. Under current law, a small business owner can deduct $30,000 or more of an SUV purchase by combining equipment and accelerated depreciation breaks in the tax code.
President Bush proposed increasing the equipment deduction to $75,000 in January. The House proposed raising the deduction to $100,000. The Senate initially offered $75,000. An amendment to increase the amount to $100,000 passed Thursday -- but only for the next five years.
The final details of the small business deduction will be finalized in House-Senate negotiations over the next few weeks.
If the deduction is raised, a small business owner will be able to write off the entire cost of almost every vehicle on the market that the IRS defines as a truck -- those having a gross vehicle weight of 6,000 pounds or more. Under the president's plan, a Hummer H1 buyer could deduct nearly $89,000 of the $106,000 purchase price.
Under the congressional plans, the entire cost of the H1 -- the most expensive, least fuel-efficient sport utility vehicle sold in the U.S. -- would be tax-deductable.
"This puts a glitch in the tax code on steroids," said Keith Ashdown, vice president of Taxpayers for Common Sense, a Washington watchdog group. "It makes an egregious loophole even more egregious."
In the House plan, for the first time, large corporations would receive some benefit. Large companies could deduct 50 percent of their equipment purchases.
The small-business benefits are estimated to cost between $23 billion and $39 billion, according to the Joint Committee on Taxation.
Efforts by Sen. Barbara Boxer, D-Calif., to close the "SUV loophole" have foundered. Seven senators, all Democrats, co-sponsored the Boxer bill. In the House, 22 Democrats backed a similar bill by Rep. Anna Eshoo, D-Calif.
The Joint Committee on Taxation estimated Boxer's bill would raise nearly $1.3 billion in revenues over 10 years.
The auto industry would like to see the equipment deduction apply to all vehicles, not just vehicles that weigh 6,000 pounds or more. Eron Shosteck, a spokesman for the Alliance of Automobile Manufacturers, said it was unfair to discriminate against a small-business owner that does not need to drive one of the heaviest passenger vehicles.
"It's still not the most equitable treatment of our products," added General Motors Corp. spokesman Mike Morrissey. "They didn't make it worse, but they didn't make it better."
You can reach Jeff Plungis at (202) 662-7378 or jplungis@detnews.com.