Nonprofits are worried that the federal tax bill approved by the U.S. Senate this week will put the brakes on car donation programs, which have grown into a major revenue source for Bay Area charities.
Donors have been permitted to claim a deduction equal to the Kelley Blue Book value for the car, even though the nonprofit which received the donation generally sold it for far less. As of Jan. 1, donors will have to wait until the car is auctioned, and can only deduct the sale amount.
Plenty of Bay Area nonprofits push car donations as an easy way to give.
Make-A-Wish Foundation in San Francisco receives 13 percent of its operating budget from car donations. If car donations decline, as many expect, “it will be devastating to us,” Patricia Wilson, executive director of Make-A-Wish, said. “We made $500,000 in the Bay Area. How the heck can I make that up?”
Pete Palmer co-founded Vehicle Donation Processing Center in 1996 to help charities sell donated cars. His company has raised $30 million net for charities in that time. “They’re throwing charities to the wolves with this sales price ruling,” he said. “There’s a good reason for charities to quick sell at auction … But that doesn’t make (the amount the car sells for) fair market value.”
The new law relied on a recent study by the General Accounting Office, which questioned nonprofits and auctioneers. They also looked at individual tax returns. In two-thirds of the 54 returns they looked at, charities received 5 percent or less of the value declared on the tax returns.
Opponents of the law, like Palmer, say car auctions are still net profit for charities. He believes Congress included this in the tax law to help defray the cost of all the tax cuts, and faults nonprofits for not having a cohesive enough voice to lobby Congress as effectively as so many other interest groups did on this bill.
Palmer said that car donations for charity operate on an “80-20” paradigm. The top 20 percent of cars in value generate 80 percent of revenue – more than half his cars go for less than $300. With the new ruling, Palmer said, an individual will think twice about donating a nice car to charity for a small tax deduction instead of seeking fair market value on Ebay.
“There has been no discussion from Congress how to offset the lost revenue to charities” from this bill, Wilson said. Make- A-Wish outsources the car sales to Charity Funding Service and receives 50 percent of the gross sale. Charity Funding Service uses its 50 percent of the profits to advertise the program for Make-A-Wish.
KQED started its car donation program in January and has raised $571,825.
Some say the new law is fair. “My understanding is that this (law) brings car donations in line with the tax treatment of other in-kind contributions,” said Barbara Kimport, senior VP of financial development at the YMCA, which has a small car donation program.
But advocates remain adamant. “It was amazingly disingenuous (of Sen. Charles Grassley) to say that charities won’t get one dime less,” Palmer said. “On a particular car they won’t, it’s true. But they won’t be getting the good cars anymore.”