Poor and Poorer: Part III
Tax-code confusion spells bad news for Good News Garage
The air wrenches aren't chattering quite the way they used to at the Good News Garage in the Old North End. The hissing sound emanating from the mech-anics' bay has less to do with the pneumatic lifts than with confusion over a new tax law, which is taking a hefty bite out of charitable car donations.
Since 1996, Good News Garage has been accepting old, used and run-down automobiles, repairing them, and then giving them to low-income individuals and families at minimal cost. Some luxury cars that are either too expensive to repair or aren't a good match for low-income families are sold at auction, with the proceeds used to repair other cars. Still other vehicles, mostly old vans, are fixed up and added to the fleet used for CommuteShare, a state-funded program that provides free rides to thousands of low-income Vermonters around the state who either don't drive or can't afford a car.
For years, charitable car donations have been a boon for donors and recipients alike. About 80 percent of the beneficiaries are mothers with children who need transportation to work, school, child care or job interviews. Likewise, donors have long taken advantage of the generous tax break provided under federal law, which allowed them to deduct the full market value of the car on their federal income taxes.
And therein lies the rub. Charitable car donations proved to be such moneymakers that in recent years other nonprofit groups have jumped on the bandwagon. Good News Garage, which has since expanded its operations throughout New England, used to promote itself on New Hampshire Public Radio, until the station began accepting car donations as part of its own on-the-air fundraisers. Eventually, less scrupulous operators devised schemes for accepting vehicles under the guise of charity, then re-selling them at auction for a hefty profit.
But on October 22, 2004, President Bush signed into law "The American Jobs Creation Act of 2004," a business-tax bill that also closed some of the loopholes in the federal tax code. One of its provisions ended the sketchy practice of people donating nearly worthless old heaps to charity and then claiming thousands of dollars in deductions on their income taxes. The new law, which took effect on January 1, limits the amount of a deduction to the price the vehicle fetches at auction or its true appraised value.
Few people realize, however, that the new law exempts low-income car ownership (LICO) groups such as Good News Garage from the deduction limits. So Vermonters who donate their old cars to Good News Garage can still claim the vehicle's full bluebook value on their tax returns.
Unfortunately, many stories about the new law in the mainstream press, including USA Today and Forbes magazine, overlooked that small but significant exemption. As a result, since the beginning of January, legitimate LICO charities around the country, including Good News Garage, have seen their auto donations sputter and stall.
Carmen George, marketing assistant and development coordinator for Good News Garage in Burlington, explains that their operation is a seasonal business. Typically, donations spike during the December holidays, then slack off through the winter, when many old vehicles are buried in the snow. Nevertheless, she says that donations still appear to be down by about 50 percent over last year. Come spring, that will be bad news for the dozens of low-income families who would otherwise benefit from these refurbished rides.
"Seventy-five percent of the people who get cars from Good News Garage are off welfare within a year," George points out. "When you look at the return that's available for communities and the state, then you see how important it is to keep this program going."