Donate Vehicle –> Help Charity –> Get Tax Deduction
Look around your neighborhood. Is there a parked vehicle that hasn’t moved for some time? Maybe it’s right in your own driveway — a car that no one uses anymore, a motorcycle that your kids left behind when they left home, an RV that you stopped driving in the last gas price hike.
You might have planned to give it to a relative, or maybe you were going to sell it “one of these days.” But it’s still there, gathering dust, losing air in its tires, losing value with every year it sits idle. It may have been there so long that you don’t even notice it anymore. (But you can bet your neighbors do.)
What if you could avoid the hassles of cleaning it up, advertising it, and selling it, while doing some good for a charity at the same time? Oh, and what if you could get a tax deduction, too?
Hundreds of thousands of people donate their junkers — and even, good, used vehicles — each year to benefit their favorite charities. One company that helps make that possible is the Vehicle Donation Processing Center (VDPC), owned and operated by Harvard E. “Pete” Palmer, Jr. of Oakland, California, and his business partner, John R. Learned.
Pete Palmer is arguably one of the individuals with the broadest knowledge of the far-flung vehicle donation industry, both as a former charity executive director and on the for profit side. After more than 20 years running an advertising agency in the San Francisco Bay Area, in the early 1990s, Palmer’s shop was hired to create and air radio commercials for Volunteers of America.
In 1996, Palmer and an associate formed the Vehicle Donation Processing Center Inc. In 1998 Palmer worked with other car donation industry leaders in California regarding state legislation designed to bring about more transparent reporting in the state’s vehicle donation industry.
Five years later, when the federal government sought to examine and further regulate the industry, Pete Palmer was interviewed by the General Accounting Office and became instrumental in forming a vehicle donation coalition to lobby regarding the legislation that became part of the Jobs Bill of 2004. That coalition was dissolved in 2005.
Later, Palmer helped bring more charities, call centers, auctions, and others into a new, politically oriented coalition to address difficulties associated with the car donation aspects of the Jobs Bill. That work continues today.
Blue Planet Green Living (BPGL) spoke with Palmer by phone from his California office. We asked him to tell what happens when consumers gift their vehicles through his program and to explain the advantages for all parties. In the process, we also learned some interesting facts about charitable tax deductions. — Julia Wasson, Publisher
PALMER: It would be lovely to say that everybody thinks about car donation as a tremendous way to help a charity of their choice, or charities in general. That may well be a part of everybody’s thinking, and certainly it is the big part of what we believe; but for most people, that’s not the primary motivator. For the great majority, they are looking for a one-time garbage-removal service.
We do our best to provide that, and 99.9 percent of our donated vehicles are older, junky cars. Some vehicle donation processors are very choosy in the cars that they accept for donation. They want to make sure there is a fair amount of profit in it, and they may well sell the vehicle in a used car lot.
That is not our methodology at all. We want to try to help everybody who wants to donate a car, no matter how crummy that car might be. A gross, average sale price of the cars we process is barely over $400. Sixty percent of the cars we handle do not run at the point we get them.
We’d rather, to the extent that it’s not going to impact funding of the charities, help everybody who wants to donate a car, even if their quest is limited to the search for that one-time garbage-removal service. In so doing, we also help charities. As you may have noticed on the website, we list more than 400 charities that we represent. It doesn’t cost a charity anything when someone donates a car through our service.
BPGL: What happens when a charity signs up with VDPC?
PALMER: When charities sign up with us to have us process donated cars for them, we put the charities on our website and promote them to the extent we can. Each charity has its own page on our website where their mission is stated, sometimes fairly briefly, sometimes in more detail.
We also promote the charity, their mission, and the charities’ interest in helping people with cars to donate in many publications across the country. In some instances we create, at no cost to the charity, a special car donation website for that charity, as well as making the donors aware of the charities’ own website.
Every charity gets its own car donation phone number assigned to them, again on our dime. In addition to the free promotion we do on their behalf, they can uniquely promote that number and be confident that anybody who donates a car and uses the number. Even if they don’t properly say the name of the charity, the operators of our call center are going to know just by the number coming up on the screen where to send the proceeds of that particular car donation.
One of the biggest, things in our view, is to provide the best possible service to the donors. From the recycling perspective, this gets a lot of non-runners — the old, dusty, leaking cars — off the street. Then we turn that old vehicle into money to support our charities vital missions. Through the 13 years we’ve been doing this, over $60 million dollars have gone to the charities — that’s after all miscellaneous costs of every kind, tows, etc., have been deducted. We’re proud about it. We make a living. We provide a living for about 35 people now. We had almost double the staff prior to the change in the law in 2005 — which we’re working on.
BPGL: What change in the law are you speaking about?
PALMER: The federal tax law that organized — for lack of a better word — the car donation field, was originally enacted in 1986. And (paraphrasing here), quite unusually, Congress stated in the bill that it was their hope that this would allow charities to find additional funding.
So, the car donation industry really came into play in 1986 — though some people donated cars prior to that. This legislation allowed a car donor who itemized their taxes to deduct the fair market value of that vehicle up to $5,000. That was to be based on their own honest research into what that fair market value would be.
BPGL: Today, do you give the owners a form that says what the value of the vehicle is?
PALMER: No, and I think that would be a mistake. At the processing center, we don’t get our hands on the car. I think the law was right back then. If you’re going to allow anybody to donate chattel, or real property, to charity and take a tax write-off, you have to enter some figure. Let them honestly ascertain the value and take a deduction. That’s the way it is with all non-cash deductions. If you overstate your tax deduction, then you have broken the law and you’re subject to penalties during an IRS audit. Prior to January 2005, and under $5,000, that’s the way the law worked. After $5,000, car donors were required to get a certified appraisal, which was something we provided for them at no cost.
We’ve done a lot of research, and we believe that annually, up through 2004, almost 3 million vehicles were donated, although there’s some debate about this figure.
For the Jobs Bill of 2004, there were a million different parameters. The goal of the Senate Finance Committee, the House Ways and Means Committee, and, I think, for the administration, was that it be revenue neutral. But they were very keen to give significant support, through the tax code, to certain industries including ethanol producers, bow and arrow producers — even racetrack owners got big benefits.
I’m the furthest thing from an economist with knowledge-based opinions as to who should or shouldn’t have had benefits. But, as I understand it, in an effort to apply the tax breaks for the bill’s winners, the result was that they were desperately trying to find ways to make up that revenue. Charity donation write-offs became one of the areas the authors of the bill examined.
They tasked the General Accounting Office (GAO), in 2003, to do a report on car donation, and to try to ascertain to what extent there was abuse. The GAO did that.
I was interviewed for a few hours, as was the other owner of the Vehicle Donation Processing Center, John R. Learned — and others in the industry, too. Then the GAO examined a whopping 54 cars — not the cars themselves, but the paperwork on 54 cars. And they came to the conclusion that there was a “significant” (they never pinned down an exact number) amount of abuse.
The Senate Finance Committee sent the bill out to be scored, just as any tax bill is scored for potential revenue vs. cost. For the vehicle donation portion of the Jobs Bill of 2004, that scoring indicated that over ten years, with this bill in place, the Internal Revenue Service (IRS) would save $2.4 billion.
BPGL: Was the Senate’s version of the bill the one that passed?
PALMER: Yes. The House had a different version that was more in line with the administration version that we thought was much more fair than the Senate version. But it was the Senate version — after a year of efforts by us and the charities coalition and lobbyists — word-for-word, it came down the way Senator Grassley, then the Chairman of the Senate Finance Committee, said it was going to come down back in January.
Namely, a donor could deduct up to $500, based on what they ascertained to be the fair market value. Above $500, the charities were tasked to send a report to the donor with what the charity sold the car for.
If the car sold for more than $500, then an itemizing taxpayer and donor could deduct that amount. On the floor of the Senate, Chuck Grassley said this wouldn’t cost the charities one dime. A number of indicators would now suggest he was mistaken in that.
The GAO, in March of 2007, did another report in which they focused specifically on how much charities had been hurt. It was not the greatest report in my view; they only talked to ten charities, and one of them didn’t respond. They concluded that the charities that operated car donation programs were down 39 percent in the two years following the change in the law.
The IRS, in July of that year, examined car donation statistics and discovered that there were more than 60 percent fewer donated cars written off — donated with a deduction — resulting in 80-some percent less money being deducted. Charities far and wide have indicated that their proceeds from vehicle donations are down 30 to 70 percent.
A number of charities have gotten out of car donations. For example, Jules Kuperberg, Co-Director of the Multiple Sclerosis Foundation, Inc., after a dozen years of having our company process their donated vehicles, told me just this week that their foundation would prefer to no longer accept donated vehicles after the first of the year.
A few groups who found a way to advertise are probably doing better. That’s part of the ugly underbelly of charitable donation of cars, and perhaps the American economy as a whole, if you want to get philosophical about it. If you don’t advertise a product or service, not many people will use it. So, for a charity to get any volume in a car-donation funding program, they need to advertise, or people don’t know the charity can help them and needs help in funding their mission.
It’s our belief that to donate a car is a significantly impulse thing to do. You’ve had this car for whatever years. It may or may not have served you well. Now it’s not running. It’s been sitting there for a number of weeks, and finally, you say, “Oh, I’ve got to get rid of this.” Maybe you hear a commercial and google “car donation,” and you get rid of it. You pick a charity, and there you go.
So advertising is a big part of it for the charities that do a bigger volume. And there are a number of those.
BPGL: What are your specific disagreements with the Jobs Bill of 2004, pertaining to car donations?
PALMER: There are two aspects of the 2004 change that we find quite unfair, though I don’t believe the intention of the law was to hurt the charities.
One, unlike donors of all other chattel, people who donate vehicles don’t get the fair market value tax write-off. Charities are not in the position to sell the cars for the fair market value; they have to quickly liquidate them, usually by auction. And that’s not what the IRS defines as the fair market value — a transaction between a knowing buyer … knowing seller.
And two, donors don’t find out right away how much of a deduction they can get. At the point you’re deciding to donate your car, you want to know how much you’re going to be able to write off your taxes. If it’s over $500, the charity has to sell the donated car, and then the donor has to wait 30, 40, 60, 90 days to get a notification.
Those two things are what we would like to see redressed. Legislation has been introduced — HR 571, for which, as of yesterday, there were 112 co-sponsors — that would solve that problem, in our view.
BPGL: What is HR 571 proposing?
PALMER: It would require the IRS to come up with a simple, ironclad way of determining fair market value, that wouldn’t allow fudging by anybody. Then, let donors take that amount, up to $2,500. And above $2,500, we’re back to the prior methodology of requiring a certified appraisal.
BPGL: Will that drive more donations?
PALMER: We believe it will increase by a third.
BPGL: How many competitors are there in your business? Is it pretty competitive?
PALMER: Yes. There may be 10 or 12 real active ones. And there are tens of thousands of smaller players, such as a church that gets a car donated and sells it in their parking lot. There’s no way of knowing how many tiny, little players there are.
BPGL: What is the percentage of nonworking to working vehicles you receive?
PALMER: It used to be about 50/50 for us, then with the passage of that darn law in 2004, it went to 60/40. The incentive for somebody to give you a $4 or $5 or $6,000 car — which we got a handful prior to 2005, that went away a lot when they couldn’t get a legitimate write-off for it.
BPGL: From an environmental view, how do you deal with the biohazards involved with a car your shippers pick up?
PALMER: It’s terribly rare that they would be towed onesie, twosie behind some truck. So, the moment the donated car is picked up, environmental degradation is lessened. As we discussed earlier, many of these old or barely running cars have been sitting on the street or, worse yet over bare ground, for days, weeks or months — and they’ve been steadily leaking fluids.
BPGL: So, donating a leaking car is an environmentally friendly act?
PALMER: Yes. Automobile donation, when done properly, is a very green activity. During some significant time, prior to the donor’s decision to give the car to charity, it was likely to have been unwanted and uncared for. Hence the leaking fluids. If it did run, the likelihood is that it ran inefficiently. So we take the car to a facility that is licensed and regulated to properly handle cars in an environmentally responsible manner, and subject it to tests and procedures, every one of which will create an environmental improvement. If the car is unworthy of the cost of repair, the fluids are drained and recycled — as are the copper, other metals and materials — and the car is crushed.
BGPL: What about all the old cars that do go back on the road, how is that good for the environment?
PALMER: If the car is suitable for repair and resale, it is tuned up. It gets new tires, or at least properly inflated tires, so it can be used again, frequently by someone who might not otherwise be able to afford a car. Cars from the ’70s and before, even when tuned up properly, did not have the catalytic converters and computerized ignitions that cars from the mid-’80s and beyond were required to have.
Our average donated car was made in 1990, so the vast majority of donated cars we process — the ones that are not crushed but are repaired and go back on the road — are much better for the environment than all these people buying new cars and using up all the precious materials required in the construction of new cars. Sorry Detroit, Tokyo, etc., but we believe it’s not very environmentally sound to have everybody buying new cars every few years when, thanks to years of environmental nudging, manufacturers now make cars that drive clean and can do so for a long, long time.
BPGL: Tell us more about the actual liquidation process.
PALMER: We only use auctions, in part because of the speed and in part because of the transparency. If you’ve got multiple bidders, auctions are all recorded, and you’ve got a transparent situation regarding the price. We can’t be cheated, and the charity can’t be cheated.
Some of our competitors do the used-car-lot thing. You’ve got one used car salesman talking to one buyer — and, we have to ask, is the proper sale amount really getting back to the charity?
BPGL: Let’s say that, right here in Iowa City, we wanted to donate a vehicle, and we contacted you. We selected which charity we wanted to donate to from your website list. What happens to our car?
PALMER: You’re either going to send in an online application, where there is an easy, pull-down box for you to select your charity, or you’re going to call the dedicated phone number we have for each charity. Or, you could call our general number, and you’d be asked which charity you’ve selected.
Then, right away, we would fax out the speedy pick-up document to the liquidator, which is the auction best suited to your locale and your vehicle — and we deal with hundreds of them. They would have the transportation company call you and negotiate with you when it was convenient for you to have them come by and pick up the car.
At the point of meeting you, they would hand you a release of liability, so that you were totally out of the liability and ownership loop as of that moment.
BPGL: How do you handle things like back parking tickets or license plates, and things like that?
PALMER: You’re stuck for what happened prior to the pickup and transfer of the vehicle. I don’t think our company or the charity should be on the hook for your prior indiscretions. This next situation happens rarely — but you’re talking about a million cars a year here — the auction will, on occasion, sell the donated car to somebody, who might abandon it in a city, and the city might pick it up. Then, before the State of Iowa has shown the transfer on their books, in worst-case scenario, you’ve got a call from a tow company. So, you call us, and we indemnify you against any grievance. We have gone to the mat for our donors.
BPGL: I noticed you accept boats. When you start getting boats that don’t hold water, I can see you start taking some risk there.
PALMER: Boats can be great. We’ve had some terrific donated boats — more years ago, than now — but you’re right. Where there are very, very few cars we don’t take, in the worst-case scenario they’re being crushed — but with boats, we have to be more selective. It can’t be sunk, in a berth where there’s money due, or have an ongoing commitment to keep it there. Small boats with no trailer are problematic, too. So, yes, we have to be real careful on the boats.
BPGL: What percent of the sale of a vehicle goes to the charity?
PALMER: 50 percent of the net. We don’t guarantee anybody’s going to make any money. What we do guarantee is that they will not lose money in the aggregate, and they will not lose money on any individual vehicle.
We’re in a situation where somebody is calling us on the phone and describing their vehicle. And we have to decide, is this there even $5 of gross profit in this vehicle? If so, we want to accept it.
But, if it’s got no tires and it’s on the top of Pike’s Peak, we want to decline it, because there’s no way we could get hold of that vehicle and have the proceeds cover the costs. As you can well imagine, very frequently, we do accept vehicles that we lose money on. We do not pass on that loss to the charity.
BPGL: Is 50 percent of net to the charity standard in the industry? You obviously have a lot of costs to cover.
PALMER: There are other processors who, on paper, make it look like the charity gets a bigger percentage. I don’t think there are many of them — if any — that overall get more money back to the charities. We get a bigger percentage of the net than some, but we earn it.
It’s frustrating to us sometimes when we’re talking to a charity and they don’t see this difference. For example, over x period of time with y amount of advertising, we accepted for donation 50 cars on behalf of a charity and gave them 50 percent of net proceeds. Our competitor says, “We’ll give you 70 percent.” Well, what if they would only have accepted 8 cars during that period? Okay, they’d have had a higher profit per car, but it wouldn’t have been as much money for the charity, overall. And that is our big goal. This is the methodology that has generated $60 million — after all miscellaneous expenses — back into the hands of charities to fund their missions.
We have this conversation when they sign up: What’s your percentage of the gross sale price on a car that had only $5 in net profit? Pretty lousy. But would you rather have half of that $5 or not?
Remember, this is 2,000 pounds of rusting, leaking biohazard, in many cases.
BPGL: I notice on your site that you accept real estate. You’d think that people wouldn’t be anxious to dump off real estate, unless they’re brownfields. Are you getting brownfields in that deal?
PALMER: We have, on occasion. And we’re pretty much not accepting real estate, anymore. We got one building for the California Council of the Blind that was $200,000 profit over ten years ago. And, from time to time, we have got some good property with profit left over. But, you are correct, there’s significant exposure to brownfields. And, sometimes, with the taxes and liens they had on them, there was nothing of value left for the charity.
BPGL: Why did you start this business? What was your motivation?
PALMER: As with so many things in life, it was partly accidental. I had been in the advertising business since the early 1970s. I’d had a client in the furniture business for many years. That business closed, and he went to work for Volunteers of America and operated their car donation program for them.
They had an arrangement with them, whereby he was, in part, compensated by the profitability, the success of the program. He’s a businessman, and he brought me in to help run some radio ads for it, and the like. I had an advertising relationship with him, and he was a business friend of mine. He doubled their numbers, and the bean counters over there said, “Oh, we’re paying this guy too much; we’ve got to fire him. And they did.
So, he and I thought about it, recognizing we’re older now, and we’ve had some success in business. We wanted to see if we could help a whole bunch of charities with car donation programs. That was in 1996, so we reached out to a couple, including the Polly Klaas Foundation. We did a program for them that was very, very successful. Now, pretty much, we get eight to ten calls a week from charities inquiring and wanting us to operate one of these programs for them.
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