IRS rule change takes steam out of Goodwheels' car sales

March 11, 2007 -- Michele Chandler - Commuters on busy Almaden Expressway in San Jose may have noticed the dwindling number of autos for sale on the Goodwheels used car lot. It seems the same change in federal tax rules that prompted Goodwill Industries of Silicon Valley to open its retail auto business in 2005 unexpectedly ended up slamming the brakes on donations of used cars to the charity.

Last year, Goodwheels was selling 8 to 10 vehicles each week that had been donated by people looking for a painless tax deduction. Now the number of donated cars has dried up and the lot's selling just one, maybe two vehicles, a week.

What gives?

As of January 2005, an Internal Revenue Service rule allows people to deduct only the amount a non-profit actually received from the sale of the donated car. Before the tax change, donors could deduct their own estimate of the vehicle's value, which typically exceeded the amount the cars sold for at auction. Goodwill executives believed shoppers would pay more for primped-up used cars that had passed smog tests, came with the proper paperwork and had minor problems fixed. The Goodwheels venture has paid off; the cars sell quickly and rather than settling for the $900 a typical donated vehicle sold for at auction, the charity now sells them for $2,000 to $2,200 - proceeds used to support Goodwill's job training efforts, said Goodwill Chief Executive Frank Kent.

But after word got around about the IRS rule, more people started selling their old cars themselves in hopes they'd be able to command a higher price than frugal Goodwheels could. Kent said many other charities have reported a decline in vehicle donations, which they also attribute to the tax rule.
Goodwill hopes the dip in used car donations is just temporary and that more people will soon be looking for a quick tax write-off.

"Someone may have had a car while they were at Stanford, but they are going back to Connecticut and don't want to drive the car back cross-country," Kent said. "We are hopeful we will see an uptick."

Meanwhile, the Goodwheels business on Almaden Expressway is being temporarily relocated to Goodwill's San Jose headquarters on North Seventh Street. That will allow the auto lot and store on the property to receive a much-needed face-lift. Painting and renovating the compound is expected to take about six weeks.

Goodwheels is expected to return to its Almaden Expressway location in late spring. While it's anyone's guess whether car donations will return to previous levels, Goodwheels remains "a viable part of our business," said Stephen Dovenmuehle, director of plant operations at Goodwill.

The renovation of the organization's Almaden Expressway property also will make room for Goodwill's second location of "GW," a tony second-hand boutique selling high-end and designer items. The first GW opened on Main Street in Los Altos in 2003. The elite GW has done well, bringing in more dollars per square foot than Goodwill's 15 other Bay Area stores because average GW customers spend twice as much as conventional Goodwill shoppers.

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