States and other governmental jurisdictions are looking for ways to generate more revenue to compensate for lower tax reve-nues. Many have opted to generate new revenues through motor vehicle-related taxes, such as higher vehicle registration fees, additional taxes on tires and batteries, and new environmental fees and surcharges.
“These are small taxes with a high cost of admini-stration,” said Jim Fredlund, fleet tax director for GE Commercial Finance, Fleet Services. “I view it as a form of death by 1,000 cuts.” For instance, New Jersey introduced a $1.50 fee on Aug. 2 on the sale of each new tire in the state, when the transaction is subject to the New Jersey Sales and Use Tax Act. Similarly, Cali-fornia is proposing to charge $2 more to register vehicles and 75 cents more to buy a new tire to raise money for an expansion of its air pollution programs. The package of proposed increases – which still must be approved by the California legislature and signed into law by Gov. Schwarzenegger – would raise the state tire fee from $1 to $1.75 per tire and allow local air quality man-agement districts to add a vehicle registration surcharge ranging from $4 to $6 per vehicle to help fund new environmental pro-grams.
“Fleets are incurring additional expense for registration, taxes, license plate, and inspection fees,” said Kathy Kent, global fleet manager for Avaya. “As state, county, and city governments in-crease their fees for these services, it makes it difficult to budget for a year in advance.”
Accelerated Sales Tax for Leased Vehicles
This summer, 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 is based upon the total of the lease payments instead of the pur-chase price of the vehicle,” said John Shevlin, director of taxation, LeasePlan USA. “Similar to the accelerated sales tax, some juris-dictions, to compensate for reduced tax revenues, are considering implementation of a gross receipts-based tax structure that is as-sessed by state, county, and city levels of government,” said Shev-lin. Another fleet taxation trend is the ongoing movement by states from a sales tax to a rental tax for leased vehicles, said Steve Greenway, strategic consultant, GE Commercial Finance, Fleet Services. Currently, 39 states use a rental tax. “In the early 1990s, Maine and New Jersey switched from a sales tax to a rental tax, and were followed by Iowa, Arkansas, and, most recently, North Dakota,” said Greenway.
More Aggressive Tax Audits of Fleets
A growing trend in fleet taxation is aggressive tax audits of fleets. “For the past three years, 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,” said Shevlin. During this three-year period, tax audits of fleet management companies have become more aggressive. “Auditors are scrutiniz-ing records more thoroughly than in the past and more emphasis is being placed on the substance of each transaction,” said Green-way. “We see both ownership and reimbursement fleets moving to leasing as a way to avoid this exposure, because the vehicle audits are then the leasing company’s responsibility.”
Hidden “Taxes” to Supplement Revenues
Many local governments rely on traffic fine revenues to bal-ance their budgets and supplement law enforcement budgets. Many jurisdictions are seeking to improve this revenue stream with more aggressive enforcement of traffic and parking viola-tions. “Some jurisdictions are so aggressive in their collection process for parking ticket fines that they are going after tickets that are 5-years old, in some cases the vehicle and the driver are no longer around,” added Kent. Agreeing is Chad Roberts, fleet manager for Gordon Food Service: “There is an aggressive pursuit of parking tickets, which includes boots, license suspensions, and a quick doubling of fines.” In addition to becoming more aggres-sive in enforcement, governments are also increasing the cost of parking fines and traffic violations, sometimes doubling them.
Another new revenue source is photo traffic enforcement sys-tems, commonly known as red-light cameras. Companies market-ing these systems install the cameras without requiring a city to pay the upfront installation cost, with the understanding that the city will share the income from fines collected from violators. “These programs are easy ways to generate significant revenue at minimal expense,” said Steve Niewald, operations manager, title services, GE Commercial Finance, Fleet Services.
The Need for Tax Relief
All of these trends point to a single conclusion: it’s time for commercial fleets to receive relief from these nuisance taxes and not be treated as cash cows to offset government budget shortfalls.
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