Tax Break for Buying a Car - A Great Idea

On Tuesday, February 3, 2009 the United States Senate overwhelmingly approved a broader stimulus package which includes help for consumers who want to buy a vehicle. The passage of the amendment would make interest and sales taxes deductible on federal income tax returns for vehicle purchases made this year. The National Automobile Dealers Association says that a consumer will save approximately $1,500 for a $25,000 vehicle.

The measure is clearly intended to jumpstart automobile sales. Why is that important to the overall economy? One only needs to look at the impact of automobile sales and the revenue generated for states and local economies from sales taxes. In Rapides Parish alone, sales of new and used vehicles (i.e. anything with a title) generated more than $29 million in sales tax revenue to the parish over the last three years. While the sales taxes would be deductible, the measure would not affect the amount of taxes collected by the state or the community. Instead, additional sales generated by the incentive of having the interest and sales taxes deducted for the year would spur more sales. More sales, of course, mean more revenue for the parish.

Take the dollar amounts collected in Rapides Parish and multiply that over Louisiana’s 64 parishes and the total impact of automobile sales on the state’s economy is readily apparent. Multiply that number again by the total number of counties and states across the United States and the revenue collected is staggering.

Rapides Parish alone saw a 10% drop in sales tax revenue from 2007 to 2008. Sales tax revenue is expected to decline even farther in 2009 because total vehicle sales in the state are expected to decrease dramatically from 2008 and even more drastically from 2007. Experts expect that nationwide sales will be at their lowest since 1981. In 2007, sales nationwide were north of 15 million. In 2008 they dropped to below 12 million. Every manufacturer and retailers has seen sales decrease. More than 1,200 franchised dealerships closed their doors in 2008 and the estimate for 2009 is even more dealerships will vanish.

The fall in sales, dealerships and employment in the automobile sector has a direct and proportional impact on states, parishes (counties) and local governments. Without automobile sales’ tax revenue governments are forced to cut services. Stimulating automobile sales directly places sales tax revenue into local government coffers which, in turn, allows them to hire employees and continue servicing its constituents.

In 2007 (the most recent year data was available) Louisiana automobile dealerships employed more than 18,000 workers with an annual payroll of $785 million. The average dealership employee earned $43,342 per year among the 337 new vehicle dealers. These numbers do not include non-franchised dealers, boat dealers, ATV dealers or non-franchised repair facilities. However, the tax incentive currently attached to the Senate bill will stimulate sales, increase tax revenue, allow employees currently employed by dealerships to keep their positions and drive the economy. Contact your local legislator and express your support of the Senate Bill so that it may be carried back into the House version when it is amended.