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Tax Bill includes tax break for large SUV buyers

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Tax Bill Has Break for Purchase

Of Luxury SUVs for Businesses



Thinking of buying an SUV? Don't settle for midsize. If you run a small business, Uncle Sam wants you to upgrade.

A provision in the tax bill approved by Congress last week allows small-business owners to write off $100,000 for the purchase of, among other things, luxury SUVs. The previous cap was $25,000.

The tax break applies to small-business owners who buy a vehicle weighing at least 6,000 pounds. Such deductions, which have been in the tax code for years, were originally intended to prevent farmers and construction contractors from being slapped with the 10% luxury tax on vehicles costing more than $30,000 when they purchased pickup trucks and tractors.

But with SUVs getting bigger, the number of vehicles that qualify for such deductions has grown, encompassing such luxury models as the Cadillac Escalade, Lincoln Navigator and the Ford Expedition. Critics say allowing big tax write-offs for such vehicles -- which tend to guzzle much more gas than an ordinary passenger car -- is inconsistent with the Bush administration's avowed commitment to reducing U.S. dependence on foreign oil.

"It's bad energy policy as well as being very costly from a federal taxpayer point of view," says David M. Nemtzow, president of the Alliance to Save Energy, a Washington-based consortium of business and consumer groups. Mr. Nemtzow said the provision's cost to the U.S. Treasury is estimated at $1.3 billion during the next decade.

An official with the National Federation of Independent Business, which advocated raising the size of deductions for vehicle purchases by small-business owners, acknowledged the provision "has the perverse effect of forcing people to make decisions based on the tax code, not based on their needs." For that reason, he said, the federation advocates expanding the deduction to cover vehicles that weigh less than 6,000 pounds.

"We should take the [weight] limitation off and let business owners decide which vehicle is the most efficient for their business," said Dan Blankenburg, the federation's director of legislative affairs.

Write to Stephen Power at stephen.power@wsj.com

Updated May 27, 2003

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