KINGMAN - While the current year's tax season still has another 15 days to go, the Internal Revenue Service is already offering consumers an incentive on next year's taxes.
The IRS has announced that, in accordance with the stimulus act passed Feb. 17, taxpayers who buy a new car this year may be entitled to deduct all state and local sales taxes on their 2009 tax returns.
"It is a boon for taxpayers who purchase a new automobile and can take deductions on sales and excise tax on the purchase of a light truck, car, motor home or motorcycle," said Phoenix-based IRS spokesman Bill Brunson.
"This deduction is available for itemizers and non-itemizers - it allows all filers to claim this deduction if they purchase a new vehicle."
The deduction applies to the state and local sales taxes paid on up to $49,500 of the purchase price of a new vehicle. Brunson noted, however, that the full deduction only applies to taxpayers whose modified gross income falls below $125,000 for individual filers and $250,000 for joint filers.
The deduction will be reduced for taxpayers making up to $10,000 above those income thresholds, after which the deduction no longer applies.
"You're going to be able to get a certain percentage (of the deduction) after you hit that $125,000," Brunson said.
"But once you initially come into the phase-out range, the full benefit will be reduced until it's zeroed out."
Brunson said the tax incentive only applies to brand new cars purchased between Feb. 16, 2009, and Jan. 1, 2010. He noted the sales tax deduction will fall somewhere between lines 21 and 39 on next year's 1040 form, as an adjustment to gross income; however, those who have yet to file their taxes for this year cannot claim the deduction on their 2008 tax returns.
Since the deduction will be treated as a reduction in income after-the-fact, Brunson added that it will have no affect on the amount of sales tax actually collected by the city, which relies on local sales tax as a primary source of operating revenue. "We're not doing anything with the monies that are collected by the seller," he said.
News of the deduction has already made waves among some savvy local motorists, and Kingman's auto dealerships have felt the resulting bump in sales. Mike Beggs is the general sales manager for Cliff Findlay Auto Center at 3730 Stockton Hill Road. Beggs said he's already seen an increase in sales since the stimulus passed, with several customers directly crediting the tax deduction as their reason for purchasing a new car.
"We might be seeing one, two, three deals a month where our customers are telling us that's what brought them in, and that's just what I've seen," Beggs said. "We use it as a closing tool also - the people who don't know about it when they come on the floor know about it when they leave."
Kingman shoppers currently pay a combined 7.85 percent sales tax. Of that, 5.6 percent goes to the state, 2 percent goes to the city and .25 percent goes to Mohave County.
"I would say an average car sells for about $20,000, so your average tax on that amount would be about fifteen, sixteen hundred dollars - actually, its $1,570." Beggs said. He noted, however, that the deduction reaches a maximum of $3,885 for cars costing $49,500 or more. "Someone knowing that they can write off three, four thousand dollars at the end of the year; that's a big incentive."
As weather starts to warm up and as the benefits of the deduction become more widely known, Beggs said he expected to see about a 5 to 10 percent increase in monthly sales. While that may seem modest at first blush, with automotive sales hovering near historic lows, Beggs said any positive news is welcome.
"Oh yeah, anything positive to the economy right now, I mean, is going to help us," he said. "We've kind of been on a decline for a while, and we're starting to see it turn around. Business is definitely starting to pick up."