Fleets are the Targets for ‘Hidden Taxes’
Of every $100 spent on fleet, $4.10 is spent on taxes. In 1983, it was $3 for every $100 spent on fleet. This cost promises to increase further in the coming years, especially in an era of governmental deficit spending. Not only has the total dollar amount of taxes increased, but so too has the complexity of taxes as the number of jurisdictions imposing them continues to proliferate. Compounding this complexity is that fleet taxes vary nationwide because there is no uniformity between states or even within a state. Increasingly, states and other governmental jurisdictions are looking for ways to generate more revenues through motor vehicle-related taxes, such as higher vehicle registration fees, additional taxes on tires and batteries, and new environmental fees and surcharges. As state, county, and city governments increase fees for these services, fleet managers find it difficult to accurately budget for them. In addition, an increasing number of local jurisdictions are imposing taxes on leasing companies, such as local gross receipt taxes, business occupation taxes, and license fees.
‘Hidden Taxes’ to Supplement Revenues
States and jurisdictions are looking for ways to generate more tax revenue. One example is the accelerated sales tax. The first state to require this tax was New York, which passed an amendment to its tax law in 1992 requiring the full sales tax liability for a leased vehicle to be paid at the start of the lease. The accelerated sales tax is based on the total lease payments instead of the vehicle purchase price. For instance, the state of New York calculates its sales and use tax based on a 32-month lease term. However, if a fleet cycles a vehicle, let’s say in 28 months, or if the vehicle is totaled in its 12th month of service, then the balance of the taxes already paid are “lost.” I know that there are mechanisms in place to recoup these overpaid taxes, but it’s like fighting city hall. Even if you can prove overpayment, it is extremely difficult to retrieve these monies. Sometimes, the cost of retrieving the money is greater than the amount in question. Other states that have an accelerated sales tax are Iowa, Maine, Minnesota, New Jersey, North Dakota, Ohio, and South Dakota.
Another growing trend in fleet taxation is aggressive tax audits. More states are using audits to discover additional revenue sources. Records are being scrutinized more thoroughly than in the past and more emphasis is being placed on the substance of each transaction. Personal use is also in the crosshairs of the IRS as the federal government cracks down on what it perceives as abusive practices. Industry-wide, personal use tax recordkeeping is haphazard, ranging from well-managed to adequate. Some of the best managed personal use tax recordkeeping programs are found at fleets that have experienced an earlier audit.
Also, as state and local jurisdictions look to balance budget shortfalls, sales tax and property tax rates will continue to
increase. In addition, there is also an ongoing movement by states from a sales tax to a rental tax for leased vehicles. Other annoying taxes are neighborhood parking permits and the “double-dipping” taxation that occurs when vehicles are transferred between states without any prorated rebate provision.
As the adage goes, there are two certainties in life – death and taxes. Despite this truism, it is within our power to influence the degree of taxation imposed upon our industry. Recently, the fleet industry was successful in exempting trucks greater than 10,000 lbs. GVW in the state of Minnesota from a new accelerated lease tax for motor vehicles. Minnesota Gov. Tim Pawlenty signed the tax exemption into law on July 13, 2005.
Despite this and other successes, there are many more tax threats on the horizon. We as an industry should be grateful for the ongoing vigilance of the American Automotive Leasing Association (AALA), the Truck Renting and Leasing Association (TRALA), the National Association of Fleet Administrators (NAFA), and other industry watchdogs for standing up and defending the interests of the commercial fleet industry.
Let me know what you think.