How Congress Forces Businesses To Buy Heavy Trucks
by Craig Severance
Its tax time again, and as a CPA I see what my small business owners (which includes just about every contractor, realtor, lawyer, doctor, wildcatter, you name it) have purchased for their businesses last year.
Despite $4/gallon gas in 2008, once again I see that all of the businesses that bought a vehicle last year have purchased a HEAVY TRUCK. Why am I not surprised? Congress has made it very clear that is the only kind of vehicle they are supposed to buy.
You thought Congress was pushing for energy efficiency, hybrids, better fuel economy standards, and cutting greenhouse gas emissions? Not so much.
Consider these choices for business owners:
Choice A: Buy a Fuel-Efficient Auto or Light Truck. Pay $30,000 for a new fuel-efficient auto or light truck or van to be used 100% in my business. How much of that can I deduct from my business income? Because my vehicle choice is NOT HEAVY, it is automatically considered by Federal tax law to be a "Luxury Automobile" subject to very low annual deduction limits. I cannot use ANY immediate tax write-off ("Section 179 expense") to try to write off the purchase price. Instead, I must write it off over 5 years -- and the first year limit is (normally) only $2,960 for an auto, or $3,160 for a light truck or van. (In 2009 these first year limits are temporarily increased by $8,000,).
Here is the real kicker -- over those 5 years, if I buy a fuel-efficient car or light truck or van, the normal "Luxury Automobile" deductions total to only about half of what I actually paid for the vehicle: $14,160 for autos or $15,060 for a light truck or van. The rules actually forbid businesses who buy a fuel-efficient vehicle from deducting the full cost of those vehicles!
Choice B: Buy a Heavy Truck. Pay $40,000 for a new heavy truck with all the options. How much of that can I deduct from my business income? ALL of it! Strictly BECAUSE the truck is HEAVY (more than 6,000 lbs loaded Gross Vehicle Weight) it is not subject to tax deduction limits. The business can write off the entire cost the first year, if it uses the "Section 179" deduction. If it chooses instead to write it off over 5 years, it can actually write off the full purchase price with no artificial limits.
If you were a business owner faced with the above rules -- what would you do? Almost certainly, you would buy the heavy truck -- whether you need one or not. Its a straightforward business decision.*
Setting the Norm
There are usually millions of vehicles purchased by businesses each year. Congress won't let these businesses write off the full cost of lighter vehicles, so almost all business vehcles are heavy trucks and SUV's.
With this proliferation of heavy trucks on the worksite, a social norm is also set: a serious vehicle is a heavy truck or SUV. Fuel-efficient vehicles are for sissies, right?"
Fixing The Problem: Take Away or Give More?
To set the rules straight requires changing the rules so they are the same for both lighter fuel-efficient vehicles and heavy vehicles.
Take Away Tax Breaks. Congress almost did this about a year ago. There was talk that immediate expensing would be changed to apply only to heavy vehicles over 12,000 lbs GVW. This would have denied it to essentially all SUV's and heavy pickups. It didn't happen -- do you know how many contractors every Congressman has in their district?
Give The Same Tax Break. Throw out the "Luxury Automobile" rules altogether and let a business write off the full cost of any vehicle purchased for use in the business -- regardless of weight. Thus, if the business needs a Prius, it could finally write off its full cost. If the business needs a heavy truck, it could still write off the whole cost. No one would lose any tax break - all business vehicles would simply receive the same break.
If we are ever to have a chance of cutting our oil imports and greenhouse gases, we should stop forcing businesses to buy heavy trucks.
*Right now, businesses can't actually write off the full costs of fuel-efficient vehicles if the business owns it. The only work-around I know is to buy the fuel-efficient vehicle personally - in your own name -and turn in mileage reimbursements at standard mileage rates.
CPA disclaimer: None of the above is intended as specific tax advice. Consult your own tax advisor before acting on any information.
This article was originally published on April 8, 2009.