By John Woolfolk

Mercury News


Dana and Cathy Gauthier rushed Wednesday to donate their 2000 Chrysler Town & Country minivan at Goodwill Industries in San Jose.

The couple planned to give the car to charity anyway, but hoped to take advantage of a tax break they feared would be reduced come Jan. 1.

The Gauthiers are among scores of car donors who have flocked to charities this month to give away their vehicles before the change in federal tax law. San Jose's Goodwill center has seen donations triple from a typical 30 a month to 94 so far in December.

``We were looking to do something with the vehicle that would help people out,' said Dana Gauthier, 52, a technology company salesman from Palo Alto. ``But certainly, if we were going to give it away, we wanted to give it away this year rather than next year and take advantage of the tax deduction.'

Current law allows car donors a tax deduction for what they determine to be the vehicle's fair market value -- the price they could expect if they sold it based on sources like Kelley Blue Book. Starting in 2005, donors who consider their cars worth more than $500 can claim only the actual selling price -- typically set at auctions for wholesale or salvage rates.

The law change, approved in October, has boosted donations in California, where more than $45 million worth of donated vehicles were sold in 2002, the most recent figures available.

At the Monrovia-based Vehicle Donation Processing Center -- which handles tens of thousands of car donations a year for more than 200 charities, including the Polly Klaas Foundation and California Council of the Blind -- co-founder Harvard E. ``Pete' Palmer Jr. says business is up 50 percent to 75 percent.

`Spike in December'

``We always get a spike in December,' Palmer said. ``But this year, certainly in part because of the press about the changing tax law, we are up for this month.'

At Car Donation Services in Walnut Creek, Chief Executive Richard Smith said business is up 40 percent over last year -- a big help for the Animal Rescue Foundation, the biggest of the company's 29 charity clients.

``We've seen a substantial spike,' Smith said. ``Our totals are higher than ever. Our No. 1 charity is going to get over $200,000 from donated vehicles.'

The law change, sponsored by U.S. Sens. Chuck Grassley, R-Iowa, and Max Baucus, D-Mont., aimed to crack down on suspected tax cheats.

A November 2003 report by the U.S. General Accounting Office based on 54 vehicle donations found that in most cases, the claimed value was 10 times the sale price and 20 times what the charities actually received. A 1983 GMC Jimmy truck whose donor claimed a $2,400 deduction sold at auction for $375 and netted the charity -- which like most uses a third-party agent to handle the transaction -- just $31.

``The new law ends the shady practice of a donor giving a junker car to charity and claiming thousands of dollars for it as a deduction on his income tax,' Grassley said after the law passed in October. ``The reforms will place no additional burden on the donor and won't reduce the amount going to charities from a donated car by a dime.'

Donors like the Gauthiers simply felt the new system would undervalue their donation. Their minivan with 79,000 miles could fetch $10,000 to $12,000 if they sold it themselves, based upon Kelley Blue Book and Edmunds .com estimates of fair market value.

Charities fear drop-off

``In 2005,' Gauthier said, pointing to his silver minivan, ``this would probably go to auction and they'd receive something less than market value.'

Charities and those they hire to handle donations say the law change will unfairly punish them and their donors. Many donors don't even claim the write-off and give to avoid the hassle of selling a car. But charities fear the new rules will discourage giving and reduce a significant funding source for them.

``We just don't know what it's going to do to us, but we're worried,' said Catherine Skivers, who handles government affairs for California Council of the Blind, where car-donation proceeds account for half of its $460,000 budget.

Vehicle Donation's Palmer notes with irony that the new tax rules were tucked into the American Jobs Creation Act of 2004 -- a bill widely derided for corporate tax breaks. He added that sponsor Grassley was blasted by a taxpayer group for sponsoring $50 million toward a rain-forest attraction in his home state that Citizens Against Government Waste deemed a pork-barrel boondoggle.

Despite the Gauthiers' concerns, the new law probably would not have affected their tax write-off. Largely because of the changing law, Goodwill in San Jose -- which handles its own processing and resale of donated vehicles rather than hiring middlemen -- will no longer auction cars next year. Instead, it will sell them at a no-haggle, fair-market sticker price.

Trish Dorsey, a managing director at Goodwill Industries of Santa Clara County, said the idea is to boost both the write-off value for donors and the proceeds to the charity, which provides vocational services to help people find work.

``We believe we'll get a higher value for each car,' Dorsey said. ``If we're able to produce a higher level of revenue, we can help more people, and the side effect is that the donor benefits.'



-Matt-