Tax Legislation

Vehicle Donation Program Reforms
 

Michigan Has New Laws on Vehicle Donations Michigan Governor Jennifer Granholm signed two new bills providing tax incentives for vehicle donations under Michigan law. One law provides an exemption from the state use tax for automobiles given to a qualified recipient by a charity (S.B.1001) PDF and the other provides an income tax credit for charitable car donations (S.B.1003) PDF. The laws became effective on August 27, 2004. Several Michigan charities operate “Wheels to Work” programs, whereby charities take donated vehicles, repair them, and resell them below market value to individuals for whom the lack of reliable transportation is seen as a serious barrier to employment and self-sufficiency. While the program has been successful in providing transportation to individuals in need, state tax law, particularly the sales and use taxes, can be a barrier to individuals who purchase donated vehicles. When an individual purchases a used vehicle from a charity, he or she pays sales tax (often, the organization has a dealer license and sells the vehicle at retail). This law removes the tax, which was viewed as financially burdensome and a disincentive to purchase vehicles.

Federal Proposals on Vehicle Donations   GAO Report on Vehicle Donations   IRS publications for charities that operate car donation programs (Publication 4302 PDF) and for individuals who donate their cars (Publication 4303 PDF)

S.B.1001 (Use Tax Act)
The law amends the Use Tax Act to specify that the act would not apply beginning on October 1, 2005 to the storage, use, or consumption of a “qualified automobile” that is provided to a “qualified recipient” by the Family Independence Agency or other 501(c)(3) charity. To be exempt from taxation, the automobile would have to be inspected by a certified mechanic, insured, and registered to a “qualified recipient.”  Bill Text (PDF)

S.B.1003 (Income Tax Act)
The law amends Michigan's Income Tax Act to provide a nonrefundable credit equal to one-half of the fair market value of a car donated by the taxpayer to a charity that intends to provide the car to a “qualified recipient.” The value of a passenger vehicle would be the lesser of (1) the value as determined by the charitable organization, or (2) the value as determined by an appropriate appraisal guide published by the National Automobile Dealers Association. The credit would be capped at $50 for a single return and $100 for a joint return, and would be available for tax years beginning after December 31, 2004, and prior to January 1, 2010.  Bill Text (PDF)

Last updated: September 9, 2004

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