Lure of Tax Savings Fails to Spark Sales of Big-Ticket Items

When callers to the Janaco Porsche, Audi and BMW dealership in Norwalk are put on hold, they hear a recorded message that tells them they can reap last-minute tax savings by buying a new car before the end of the year.

But in these final hours before the new federal tax law takes effect Jan. 1, ending the deductibility of sales taxes, Janaco’s money-saving message seems to be falling on deaf ears.

“This past weekend we sold five cars; (Monday) we sold one,” said a frustrated Steve Keene, Janaco’s general sales manager. “I thought sales were going to be a lot better than they turned out to be. But they (sales) aren’t that much different from last year.” The story is the same across much of Southern California--not only at new car dealers but also for sellers of a host of big-ticket items ranging from appliances and furs to computers and boats.

Retailers report that there is scant evidence of a post-Christmas buying surge for expensive items, despite the fact that because of the new tax law, today is the last day for which consumers can deduct sales tax payments on their federal income tax return.

Little Effect Felt

“We’ve seen nothing that indicates there is a substantial increase in sales because of the tax change,” said Gordon Jones, a spokesman for Chicago-based Sears, Roebuck & Co., whose 800 stores nationwide carry items as expensive as $1,500 refrigerators and $2,000 jewelry.

And at Levitz Furniture store in Glendale, where the average sale is $750, general manager George E. Evans, said: “None of my sales people are running into customers buying strictly to beat the Dec. 31 (tax-saving) deadline.”

Anchored by Christmas gift-buying, December is traditionally a big sales month for many big consumer purchases, such as fur coats, televisions, stereos and computers. And with the new tax law, many car dealers and retailers had counted on a surge of post-Christmas buying by consumers looking for last-minute tax savings to rescue them from lackluster winter sales.

The 56 members of the Southern California Chrysler Plymouth Dealers Assn., for example, mounted an extensive year-end television advertising campaign that trumpeted 3.9% financing and “the last chance to deduct your sales tax” on a car purchase.

But at Van Nuys Chrysler-Plymouth, “the financing (message) is having more impact than the sales tax,” said Mike Cannata, general sales manager. “We aren’t seeing that many people trying to get a sales tax deduction.”

The reason, many experts say, is that there is a relatively small pool of consumers who can exploit the tax savings.

Only about 38% of the nation’s 100 million taxpayers itemize their deductions and, therefore, are able to take advantage of the sales tax deduction, according to the Internal Revenue Service. What’s more, low-cost financing and other car dealer incentives that were heavily promoted earlier this year attracted hordes of consumers and depleted the pool of new car buyers.

“The incentives early in the year are taking their toll now,” said Cannata of Van Nuys Chrysler-Plymouth.

Not all car dealers are doing poorly. At Rolls-Royce of Beverly Hills, where $100,000 and higher sticker prices greet browsers, business is said to be brisk.

“There’s been a marked increase in business; I’m selling them faster than I can get them,” said Peter Cloke, sales manager of Rolls Royce of Beverly Hills.

Boat Dealers Optimistic

And sellers of some other large items are hopeful for improved sales not because of the sales tax deduction but due to other changes in the federal tax law.

Some boat dealers, for example, say that although boat buyers will also lose the sales tax deduction after today, they should continue to benefit from favorable tax treatment of mortgage interest. Unlike many other recreational activities, such as owning a plane or taking skiing trips, boat owners may be able to write off the mortgage interest on their boats.

“I was petrified when I started hearing about the (tax change),” said Neal Esterly, owner of Esterly Yacht Sales on Shelter Island in San Diego. “But now that I understand it, I’m smiling.

“Now, the only recreation activity that (includes) a bona fide interest write-off are the second home, the boat and the mobile home,” Esterly continued. “You can’t write off the airplane anymore or the ski trips with interest on them.”

Home Improvements Attractive

To those seeking to shelter income, home improvements also have attracted new interest.

“It’s almost better to buy (a pool) next year than this year,” said Joe Urlaub, owner of Blue Aqua Pools in San Marcos, who believes tax law changes will boost his pool business by at least 15%.

As upper-income families lose traditional tax shelters, Urlaub believes they will look in their own backyard for a new way to shelter income.

The homeowner who takes out a $20,000 home improvement loan to purchase a pool will realize interest payment deductions and, in the process, boost home equity as well as the amount that can be borrowed in the form of a home equity loan, Urlaub said.