The American Recovery and Reinvestment Act of 2009 became law February 17, 2009 when the President signed the Bill. Please see the be low article (originally sent out February 16, 2009) for the applicable provisions of the Bill. 

Additional inquires have been raised regarding the application of the new law. First, the allowed deduction does not include taxes on leased vehicles. The deduction will only apply to the “purchase” of vehicles. 

Second, Motor Homes are explicitly allowed as “qualified motor vehicles” in the law so long as the original use begins with the taxpayer. Under the law, motor home means a multi-purpose vehicle with motive power that is designed to provide temporary residential accommodations, as evidenced by the presence of at least four of the following facilities: Cooking; refrigeration or ice box; self-contained toilet; heating and/or air conditioning; a potable water supply system including a faucet and a sink; and a separate 110–125 volt electrical power supply and/or an LP gas supply. The 8,500 pounds gross vehicle weight requirement does not apply to Motor Homes as defined above.

Next, the sales tax deduction is only available to individual taxpayers, not to corporations. 

Finally, the deduction is only=2 0applicable to purchases on or after February 17, 2009.

Again, if you have any questions please contact Lou Vitantonio or Ellen Mastrangelo at (440) 746-1500 or by email at lvitt@gcada.org / ellen@gcada.org or John Hayes of Maloney + Novotny at (216) 344-5231. This memo and its contents should not be construed as tax and/or legal advice.

Based on the passing of the Recovery Act the following provisions will soon apply to qualified purchases of new motor vehicles. Please be advised that these new provisions will not apply to any purchases made prior to the Bill being signed by the President. As the Bill is expected to be signed into law tomorrow, we will notify you as soon as that occurs. Please note an early version of this legislation included federal deductibility of auto loan interest, but that provision is not in the final Bill.

Below is short summary of the 2009 Recovery Act provisio ns describing the tax deduction now permitted for qualified motor vehicle taxes.  The key points are:

·        When is this effective? For purchases of qualified motor vehicles on or after the date of enactment and through December 31, 2009.

·        What taxes are deductible? Motor Vehicle Sales Taxes and Motor Vehicle Excise Taxes (not applicable in Ohio) are deductible

·        What customers qualify? Qualifying customers are customers with a modified adjusted gross income (“AGI”) of less than $125,000 ($250,000 for joint return). Note that a partial deduction is allowable for customers with income greater than $125,000 but less than $135,000 ($250,000 and $260,000 respectively, for joint returns).

·        What new vehicles qualify for the deduction? Deduction applies to NEW vehicles only (passenger car, light duty truck, motorcycle, motor home).

      •       Vehicles must also be under 8,500 pounds gross vehicle weight. 

      •       Applies to new vehicles of any model year so long as the original use commences with the taxpayer.

      •       Any vehicle sold for under $49,500 qualifies for the full deduction. 

      •       For vehicles sold for more than $49,500 the deduction is limited to tax on first $49,500 of purchase price.

·        How does the deduction work? Deductible as an “above the line” deduction on federal tax return.

      •       Customer gets the tax benefit even if they can’t “itemize” other tax deductions.

      •       Deduction IS allowable for the alternative minimum tax (AMT)

Dealers should not offer to calculate the deduction or partial deduction for their customers.  The customer is responsible for paying their Ohio sales tax at time of vehicle sale, and may realize the benefit described above upon the filing of their 2009 Federal tax return in 2010.

In terms of sales tax-related advertising, you may incorporate a “deduct your sales tax” strategy. However, as a reminder you are still prohibited from advertising that you will pay any tax on behalf of consumers.  

As a reminder, there are a number of Federal tax credits for Hybrid Vehicles still available on select vehicles. For more information on the available credits, please click here.

If you have any questions please contact Lou Vitantonio or Ellen Mastrangelo at (440) 746-1500 or by email at lvitt@gcada.org / ellen@gcada.org or John Hayes of Maloney + Novotny at (216) 344-5231.  This memo and its contents should not be construed as tax and/or legal advice.