Profiting from the luxury tax


What are some of the ramifications of the new tax law outside of the obvious desire of some people to avoid luxury spending and the 10 percent excise tax?

"We're expecting more business than we've ever had before," says the owner of a Florida company that rebuilds and refurbishes older high-quality aircraft. The new tax applies to non-airline airplanes costing more than $250,000. "We're marketing directly to the people who might otherwise be upgrading to new airplanes," says J.P. Morris, head of Aircraft Interior Specialties, Inc. of Ft. Lauderdale.

"For what the new tax alone would cost, we can put a whole new custom interior in a plane, which is all that a well-maintained aircraft is likely to need. We're accenting the idea of keeping your old airplane and taking better care of it than ever before. What Congress did was increase the value of existing airplanes. It's great for us. We're pushing this aggressively. The idea is that you can make your old plane into that new plane you've always wanted."

The situation is not so good for companies that deal with "green" airplanes. These are bare-bones aircraft, delivered new. The companies install interiors, electronics and other custom features.

The law applies to new airplanes, boats, automobiles, furs and the like that cost more than certain amounts. Used luxury items, even those that cost more than the congressionally mandated threshold prices, are exempt from the 10 percent excise tax.

The new law, therefore, is bad news for manufacturers, but great news for those who deal in used items or who provide services to the owners of the older items.

"There will be a lot fewer big sailboats and motor yachts built," says a Ft. Lauderdale yacht broker.

That view is echoed by a New England boatyard operator who says, "We've already had a slowdown. A lot of people have been leaving their boats in the yard rather than launching them. The bottom fell out of the used boat market. Now, that's showing signs of changing. People who would have bought a new boat are looking at older ones."

Dealers of high-end automobiles, too, predict that there will be at least some swing in emphasis to "classic" cars rather than the purchase of expensive new vehicles.

"The restoration market may well take off," says Jerry Siemans, a Los Angeles dealer. "That's where it looks like the value will be. An enthusiast -- and that is who is involved in this law -- will take another look at some of the wonderful cars built in the past. And there are a lot of them. The new tax makes those cars much more attractive."

An effect of the luxury tax could well be the virtual end of the dTC American general aviation aircraft industry. Leading manufacturers of light airplanes all but suspended production several years ago, due to product liability issues. Today, about half of the purchase price of a new small airplane goes to insurance that protects the company should the plane ever be involved in a crash. Many companies found that it was more profitable to concentrate on larger, cabin-class airplanes and to stop producing the smaller models.

The new law, though, will put a brake on that market as well, by increasing the prices of new planes and moving the accent to the used market.

There's usually something to be seen beyond the obvious effects of any economic or fiscal policy change. Clever businesses are quick to survey the entire set of ramifications brought on by such changes and to adapt to meet them.

The same holds true for shrewd consumers and investors. While the panic is underway, the person who does well, even profits, is the one who calmly surveys what it all means and makes thoughtful choices. By doing this, you almost always can find the silver lining.

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