Top 6 Trends in Fleet Taxation
1. Accelerated Sales Tax
In today’s economic climate, states and jurisdictions are looking for ways to generate more revenue. In 2004, Minnesota proposed legislation to accelerate the collection of sales tax at the start of a commercial or consumer vehicle lease. The first state to require this was New York, which passed legislation in 1994 requiring the full sales tax liability for a leased vehicle to be paid at start of the lease. An accelerated sales tax also exists in New Jersey and Ohio. “The accelerated sales tax produces a sales tax bill on the first day of the lease period. Lawmakers are quick to support this approach since it provides the illusion of income generation,” said John Shevlin, director of taxation, LeasePlan USA.
2. Gross Receipts Tax
Similar to the accelerated sales tax, jurisdictions are considering and implementing a gross receipts-based tax structure due to revenue shortfalls at the local levels of government. These taxes are assessed from state, county, and city levels of government. “The gross receipts tax has been especially present at the local level. Cities are examining business property listings to determine the need for a business license. Instead of a fee structure, these aggressive cities are employing a structure based on the business volume,” said Shevlin.
3. Movement to a Rental Tax
As state and local jurisdictions look to balance budget shortfalls, sales tax and property tax rates will continue to increase, said Bob Castelli, state & local tax supervisor for ARI. There is also an ongoing movement by states from a sales tax to a rental tax for leased vehicles, said Steve Greenway, commercial tax manager, GE Commercial Finance, Fleet Services. “This isn’t so much a new trend, but rather a continuation of a movement that has been ongoing for a number of years,” added Greenway. Currently, 39 states use a rental tax.
4. More ‘Nuisance’ Taxes
Many states have opted to generate new revenues with additional taxes on tires and batteries, and new environmental fees and surcharges. “These are small taxes with a high cost of administration,” said Jim Fredlund, fleet tax director for GE Commercial Finance, Fleet Services.
5. More Aggressive Tax Audits
A growing trend in fleet taxation is aggressive tax audits of fleets. “For the past three years, the number of intents-to-audit have increased from state and local jurisdictions on income, sales and use, and personal property taxes,” said Shevlin. Tax audits of fleet management companies have become more aggressive. “Auditors are better trained and are using better technology to find more money from the taxpayers. Records are being scrutinized more thoroughly than in the past and more emphasis is being placed on the substance of each transaction. The result is that anyone not well- prepared to support their numbers and to defend their position may end up with a larger tax bill than in the past,” said Greenway.
6. Streamlined Sales Tax
In 2000, several state revenue agencies met with the idea to develop and implement a simplified sales and use tax system. Today, more than 40 states are listed as participating or observing members in the project. The project is focused on uniform definitions, rate simplification, state level administration, and uniform audit procedures. As of April 2004, 20 states have enacted all or part of the conforming legislation. “The Streamlined Sales Tax Project is being developed by states to make sales and use tax laws uniform across all states, and it is expected that a bill will be sent to Congress, possibly early this year,” said Tom Becke, manager, income, sales, and use tax for PHH.