The malls aren’t the only places in Orange County bustling with after-Christmas bargain-hunters. Luxury car showrooms are also elbow-to-elbow in holiday shoppers.
While some of those car buyers are just doing their ordinary holiday shopping--if you can call buying a $40,000 car ordinary--many more are cramming into the auto dealers to beat the Jan. 1 start of a new 10% luxury tax on big-buck items like pricey cars, yachts, furs and planes, according to a survey conducted by The Times on Wednesday.
But while the tax, passed as part of the deficit-reduction bill signed into law by President Bush, has proved a boon for Mercedes and Jaguar dealers, other highfalutin businesses are finding that their sales have either remained constant or have dropped.
“People don’t have to buy boats,” said Douglas Fredericks, general manager of Hatteras of California, a Newport Beach yacht dealer specializing in cruisers ranging from $375,000 to $8 million. “Everybody’s got to have something to drive, and maybe the guy with a little more money is going to buy something a little more expensive. But you buy a boat because you love boating. You can get along just fine with no boat at all.”
Under the new tax, purchases that exceed designated amounts for particular items will be taxed 10%. The fee applies to jewelry, watches and furs costing more than $10,000, cars more than $30,000, boats more than $100,000 and airplanes more than $250,000.
The tax will be applied on the costs above those levels. For example, a purchaser of a $200,000 boat would pay a 10% tax on the second $100,000 of the sales price, or an additional $10,000. Thus, a boat that sold for $200,000 this month will cost $210,000 after Jan. 1.
While dealers said the new tax will have little effect on leased items, since the tax can be paid off over the term of the lease, cash buyers will be hit hard--and salesmen are making that clear to end-of-the-year shoppers.
“We are selling a lot of cars now,” said Larry Heiserman, new-car sales manager at House of Imports Inc., a Buena Park Mercedes-Benz dealer. “In conversations, the salesman is using (the upcoming tax) in his sales play, that now is the time to buy cars. There’s definitely an increase in sales because of the taxes.”
Heiserman added that a similar flurry of buying occurred at the end of 1986, the last year of a federal-tax deduction on certain large purchases.
But other dealers, such as Lee West, owner of Newport Imports in Newport Beach, said the recent flurry could merely be a result of the holiday season, when luxury car sales are traditionally high.
Ted Bizakis, owner of Bizakis Furs in Tustin, agreed that buyers of highly discretionary items like expensive furs or diamonds are generally well off enough to ignore the increase. He added that the 60% increase in his business since last December is not attributable to the tax increase.
“This is peanuts--it doesn’t mean anything to them,” he said. “They buy it because they want it. . . . What does it really mean to those people? People that can afford to pay $50,000 can afford to pay the few extra bucks.”
Finlay G. Scott, a yacht broker at Bayside Marine Sales in Newport Beach, said that while the tax could dissuade buyers of expensive yachts, it doesn’t necessarily spell doom for the boat industry--which is already reeling from the recent economic downturn--because it only applies to new items.
“It (the tax) may help the brokerage because there won’t be a tax on used boats,” he said. “Any boat that’s been registered, there’s no tax on that.”