Quick, Buy a Yacht Now and Avoid the Luxury Tax

There’s an old story about a man in the market for a yacht. When he finally finds one to his liking, he asks the salesman, “How much does it cost?”

The sage seller replies, “Sir, if you have to ask the price, you can’t afford the yacht.”

In the waning days before a new federal tax on such luxury items as yachts, high-end cars, jewelry and furs, the question is being asked whether San Diego County residents who can afford, say, an $80,000 Mercedes-Benz, are even breaking a sweat over a few extra dollars in taxes.

Are the area’s wealthier residents hitting the streets in a frenzied last-minute search for that perfect signature car or diamond brooch--in order to beat the new tax deadline?

The answer, according to some local salesmen: You bet they are.

“Business is just great--especially over the last three months,” said Bill George, general sales manager at Mercedes-Benz of San Diego on Balboa Avenue. “People just want to beat that excise tax, that’s all there is to it.

“I’ve got doctors and lawyers coming up to me and saying, ‘I’ll pay you the extra money rather than give it to the government. Just get me that car before Jan. 1.’ ”

But other high-end merchants aren’t whistling all the way to the bank. Despite any rush to beat a tax deadline, the impending recession and cost-conscious consumers have yacht sales sinking. And sales of personal jets are anything but soaring, they say.

As for sales of pricey jewelry and expensive diamonds? They’re on the rocks, too.

Still, new sales on cars such as Porsches, Mercedeses and Jaguars remain in high gear. And that makes people like Bill George very happy.

George, who for a mere $90,000 can put you behind the seat of a new Mercedes 500 SL convertible sports car, says sales are up 38% since October.

“People are just tired of paying so many taxes on their high-end cars,” he said. “In January, a total of 24% of the sticker price of our cars will be taxes. People have had it up to here. They’re buying that new car now.”

Greg Kach, a Mercedes-Benz sales manager at Hoehn Motors in Carlsbad, is more cautious in his optimism. Sure, sales are up. But what about after the tax deadline?

“We’re robbing sales from after the first of the year, when times will probably get tough,” he said. “Business is good, but it’s not booming. And any retailer who tells you it is isn’t telling you the truth.”

As part of the deficit-reduction bill signed into law by President Bush, a new 10% luxury tax will be applied to that portion of purchases exceeding a set dollar amount. These amounts include $30,000 for cars; $100,000 for boats; $10,000 for jewelry, watches and furs and $250,000 for airplanes.

For example, anyone who pays the $90,000 for that top-of-the-line Mercedes Benz 500 SL convertible on Bill George’s showroom floor will have to pay a 10% tax on $60,000 of the sales price, the amount exceeding the $30,000 limit. The tax adds $6,000 to the price of that Mercedes.

As a result, some manufacturers of pricey cars have begun advertising campaigns to drum up business before the new tax hits. One Jaguar ad says: “Jaguar introduces the pocket veto. Buy a Jaguar before Jan. 1 and pocket the luxury tax.”

And one Porsche ad that has appeared in the Wall Street Journal features a picture of a Porsche under this headline: “Soon, the next luxury tax will even apply to necessities like this.”

In San Diego, the word is getting out as well.

Greg Kach said his salesmen have been informing customers of the impending tax increase the moment they set foot on the showroom floor.

“But most of our clients are already aware of things like tax increases,” he said. “They’re shrewd with their money. That’s how they got themselves in the position to afford a Mercedes in the first place.”

They’re people like Peter Gault. The 52-year-old president of a paper recycling business recently decided to trade in his 4-year-old Mercedes on a spanking new 560 SEL that carried a price tag of $80,000.

His shrewd business move saved him $5,000.

“These days, it’s hard to make 10% on your money,” said Gault, an Olivenhain resident. “You like to think you’re smart if you have money. Sometimes it’s smarts. Sometimes it’s just luck.”

Gault said he has had his eye on a new Mercedes for some time now but probably would have waited until well into next year had it not been for the new tax.

“I heard about the Congress trying to stuff a new tax down our throat,” he said. “The Democrats have studied every way possible to raise taxes, right after they’ve decided how to spend them. I knew this one was going to be aimed at the guy with some money. So I decided to buy early and beat them to the punch.”

Car salesmen aren’t the only ones using the new tax as an outright sales tactic.

“We’ve been using the tax as a sales gimmick all month,” said Alan Loghman, co-owner of Loghman Jewelers in Del Mar. “We’ve called our major clients on the phone to inform them of the tax and suggest that, if they had anything in mind, now was the time to come in.”

But sales have not picked up as a result, he said. “The sagging economy is much more of a factor in our business than any tax deadline,” Loghman said. “And it’s not going to work. People are just going to buy their expensive jewelry out of the country.”

Nug Madariaga, who sells jet aircraft such as a $1.7-million Learjet at his Montgomery Field business, said sales aren’t much better.

“People just aren’t jumping to buy airplanes right now--the economy’s too bad,” said the owner of Catalina-Vegas Airlines.

But, if the automobile lobby is any indication, vendors of high-end merchandise aren’t going to take the new tax lying down.

Lori Gribbin, vice president for government relations for the American International Automobile Dealer’s Assn. in Washington, said that efforts are being made to persuade Congress to repeal the new law as early as next year.

“It’s just unfair,” she said. “There are lots of other so-called luxury items left off the list--things like antiques, artwork and show horses. And we don’t feel that an automobile is a luxury item to begin with.

“The law is supposedly aimed at the rich but it’s really hitting the automobile dealers, who aren’t rich.”

And, before the law’s 10-year lifetime ends, Gribbin says, it will become increasingly unfair. “As the years go by, car prices will rise,” she said. “And so, by the year 2000, some pretty basic cars will fall under that $30,000 tax limit.

“People will be paying a luxury tax on cars that simply are not luxury items.”

But, as some wealthy buyers scramble to make their last-minute deals, foreign owners of luxury cars might wonder what all the fuss is about.

In Australia, for example, imported cars routinely demand taxes amounting to more than 90% of the car’s sticker price.

“You have to put it in perspective,” said a spokesman at the Australian consulate in Los Angeles. “Frankly, a lot of the Australians might wonder what all the Yanks are kicking about.”