By Mike Antich
Sales and property tax revenues have plummeted, creating widespread shortfalls in government budget funding. Year-over-year, tax revenues declined an average of 12.5 percent over the past four quarters, according to a Nelson A. Rockefeller Institute of Government report issued Jan. 8. The first three quarters of 2009 were the worst decline in state tax collections since 1963, even when adjusted for inflation, the institute reported.
States and other governmental jurisdictions are scrambling to find ways to generate new revenue to offset lower tax revenues and sidestep the political risks incurred when cutting budgets. In addition, unlike the federal government, most states are required to balance their budgets.
Many jurisdictions opted to generate new revenues through motor vehicle-related taxes, such as higher vehicle registration/license plate fees, emissions inspection fees, additional taxes on tires and batteries, and new environmental fees/surcharges for tire disposal and oil recycling. In addition to the expense of new and increased taxes, there is also a hidden corporate expense of increased tax administration.
Even with the inevitable upturn in the economy, state and local tax revenues tend to lag behind by a year due to the time it takes for tax collections. Consequently, tax revenue shortfalls will persist for the foreseeable future. In addition, these new taxes will most likely remain. When was the last time you heard of a tax being repealed?
Fleet Taxes Trending Upward
In 2009, of every $100 spent on fleet, $5 was consumed by taxes. This compares to $4.10 in 2006 and $3 in 1983. This cost promises to increase further in the coming years, especially in an era of (record and ongoing) 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.
All states and other governmental jurisdictions are looking for ways to generate more revenues with new taxes, many of which impact commercial fleets. One example is an accelerated sales tax. There are 15 states with an accelerated sales tax paid at the start of the lease, based on either vehicle cost or a specified portion of the lease rental stream, depending on the state's rules. The remaining states that impose a sales tax continue to tax a vehicle on the lease rental stream.
Also, as state and local jurisdictions look to balance budget shortfalls, sales tax and property tax rates are forecasted to increase. Other incremental taxes are neighborhood parking permits and the "double-dipping" taxation that occurs when vehicles are transferred between states without a prorated rebate provision.
Hidden 'Taxes' Offset Decreased Revenues
Many local governments rely on traffic fine revenues to balance budgets and supplement law enforcement budgets. Many jurisdictions are seeking to improve this revenue stream with more aggressive enforcement of traffic and parking violations. In addition to more aggressive enforcement, governments are also increasing the cost of parking fines and traffic violations, sometimes doubling them. An expanding revenue source is photo traffic enforcement systems, such as red-light cameras and highway speed cameras. Companies marketing these systems install the cameras without requiring a city to pay the up-front installation cost, with the understanding the city will share income from fines collected from violators. The latest state of New York budget introduced $1 billion in new taxes to meet its revenue shortfall. One strategy to enhance tax revenues is intensified traffic violations enforcement by adding 50 speed cameras on New York highways to fine motorists violating the speed limit up to $100.
Another growing trend in fleet taxation is aggressive tax audits. "At this point in time, the audit activity is unbelievable," said Bill Holmes, manager, tax department for ARI. More states are using audits to uncover additional revenue sources. There has been an increase in the number of intent-to-audit from state and local jurisdictions on income, sales and use, and personal property taxes. Personal use of company-provided vehicles is also in the crosshairs of the IRS as the federal government cracks down on what it perceives as abusive practices in not paying required employer and employee withholding taxes. Industry-wide, personal use tax recordkeeping is haphazard, ranging from well-managed to less than adequate - these fleets are at risk of an audit. Some of the best-managed personal use tax recordkeeping programs are found at fleets that experienced an earlier audit. "The key to passing a federal or state audit is to have already in place a well-written personal use policy available to all drivers, while maintaining and providing adequate documentation to the auditors," said Holmes.
Managing personal use is a headache. It is also expensive with administrative costs ranging from $32-$70 per vehicle. However, an IRS audit can be far more expensive.
As the adage goes, there are two certainties in life - death and taxes.
Taxes are ubiquitous, multiplicative, and never-ending.
Death is a one-time event.
Let me know what you think.