Colorado Tax Credit

For those of you who don't live in Colorado, this might be very boring.

Anyway, the State of Colorado has a clean fuel vehicle program in place, offering some enormous tax credits (that's right, like cash) for buying a vehicle that is PZEV and runs on something other than just gas or diesel. The Prius qualifies for this program. The law actually reads something like this: "Thou shalt take a credit equal to 85% of the cost of the vehicle compared to a most similar vehicle that is only gas or diesel."

Basically, if a Honda Civic Hybrid costs 20000 and a Honda Civic Automatic costs 15000 (Comparably equipped) then the credit is $4250.

Not bad. The State of Colorado Department of Revenue's website lists the credit for each hybrid vehicle. However, they don't include the $300 price increase in their listing. The law is very clear on this, I need to take a credit for an additional $255 to compensate. But then I started thinking. What vehicle does Colorado compare it to? The law is clear for the Civic Hybrid, but not clear for the Prius.

-What is the most similar vehicle? Rumour has it it's the Corolla. This can't be right, because the base price is 14,370 for the automatic. Even if I am generous and throw in the base package of $615, I'm still at $14,985. Also, the law is clear about use of the word "cost" not MSRP so I'm going to deduct the $750 cash back I should be able to get for clearance. This puts the price at around $14,235. That leaves a credit of about $4853, almost $2000 more than the State's "suggested" credit of $2678.

http://www.revenue.state.co.us/fyi/pdf/income09.pdf

See the last page. These numbers are not binding!

So, perhaps the Corolla is too small to compare? Try a Toyota Scion xB: It's huge, and has the same size engine as the Prius (I know I'm not including the Electric part... that's the point!) It's base is $14480, leaving a tax credit of almost as much as against the Corolla.

Anyway, I'm not even comparing real dealer pricing. I can get a discount on a Corolla any day of the week.

I will likely consult my tax attorney about the legality of taking a larger credit than the one suggested by the state, but I think he's going to say that I'll need to document the true incremental difference since Colorado's definition is vague. I bet printing off the price of both cars on carsdirect.com will certainly be evidence that would hold up in court.

I've got almost $2000 riding on this, so it will be worth the $150/ hr to talk to my tax attorney about this.

Any thoughts on this issue?

Nate

 

Or I could just not claim the credit at all and donate the entire difference to the state. But that's in addition to the $1750 in sales tax PLUS an over $500 license plate!

I had a CPA review the law, and they agree that the intent of the law is clear: The intent is to encourage residents to buy a hybrid by having the state absorbing 85% of the price difference to buy that hybrid. What would I buy if I weren't getting a Prius? Toyota Scion xB, for certain. It's roomy, cheap, reliable, and gets great gas mileage (for a pure ICE). Take the Hybrid Synergy Drive out of the Prius and I have little interest in owning one. I bet the same can be said for everyone in this group.

The CPA also warned me that I will need reliable research and documentation, and should keep the documentation with my tax return records for seven years.

Think using your own interpretation is an unfair loophole? Ted Benna in 1981 noticed something in Federal Tax Code section 401 paragraph (k). He realized that the commonly accepted application of the law need not apply to him, and he started a little savings plan based upon this "tax loophole." Last year I used this same loophole to "cheat" the government out of quite a bit of tax. I put money in my 401(k).

No, next April I will certainly be claiming the largest credit possible. To be fair, I will adding in all the options on the Corolla or Scion xB to match my Prius (ABS, alloy wheels, etc) and I will take the more expensive car, and I will do it when my Prius arrives to assure accurate pricing. Basically, if i add the auto-dimming mirror to the Prius, but not to the baseline car, I can't claim a credit for that expense. If Toyota raises the price of the Prius $300, but not the basline car, that is most certainly eligible for a credit.

I will also have my tax attorney sign off on the numbers. This is the same tax attorney who saved a bunch of Level3 folks a lot of AMT by refusing to accept their company's inflated pre-IPO stock price. As a tax attorney, he was entitled to records of the privately held company, and came up with his own valuation of the company; a number that was much, much lower than Level3's "official" numbers. His clients paid substantially less AMT on their options, and didn't lose their life savings like those poor bastards you saw on TV when the bottom dropped out of the telecom boom. He also has saved people from losing their shirt when moving from the North end of Denver to the South end to change jobs. Normally, you pay capital gains on your house if you move and if it's less than 2 years and 50 miles. But again, these numbers are NOT hard and fast. Like the state's Prius credit, they are guidelines. The law is clear that if you have to move (like you lose your job) and you are facing a difficult commute (like through Denver) you may pro-rate your tax liability on your real estate gain. This could save you thousands of dollars, and is often overlooked in favor of the simpler 2 year/ 50 mile guideline.

Donate money to the state? Sorry to all you atheists out there, but I'd rather give it to my church.

I'll post my final numbers here after I get my car.

Nate

 

Thanks for the info, amped! Colorado provides no specific vehicle comparison in their tax literature. By the way, I'm planning for tax year 2004, so I have a year to work it all out. (Plus I still have to get my car!)Having Oregon as a comparision will certainly help my argument. My wife (a CPA) expects that the larger credit will throw a flag, and that the state will "correct" the number, then send me a letter of explanation, which will include an opportunity to challenge. I will then challenge, armed with my documentation, and see what comes of it. My goal will be to force the state to DOCUMENT what vehicle is "comparable" and include it in the tax code.

Nate

 

mmapes, Are you a Colorado resident? I'll definitely post here what I find out. Keep in mind my appeal process might occur in late 2005, so you must either wait until the final outcome and refile a 104x or file the 104 with the higher number then go through the same process I am going to go through. I'm hoping to set precedent for other "purpose-built" hybrids; obviously there's no discussion about what the comparitive vehicle is for the Civic Hybrid and Hylander. (On second thought... perhaps this does apply. Civic DX? EX? HX?)

Nate