Editor's Page
Fleet users soon may reap some tax benefits as the result of pending action in Washington.
Fleet users soon may reap some tax benefits as the result of pending action in Washington.
Some fleet men - although not many because of the inequities of the proposed legislation - are certain to benefit from the investment credit proposal pending in the House Ways and Means Committee. Still many more will gain as the result of the long overdue Treasury overhaul of rules governing depreciation for tax purposes.
The investment credit proposal, devised by President Kennedy as a means of stimulating investment, would enable businessmen to subtract up to 8 per cent of the cost of new equipment from corporate income tax payments. However, many businessmen - including some with large passenger car fleets - have attacked the proposal. They would rather have Congress pass faster tax write-offs for depreciation of equipment.
Let it be understood that the administration-proposed tax credit would not be a deduction from taxable income, but an amount that would be subtracted from a firm's tax liability. For instance, if a fleet user owes $100,000 in federal income taxes and he claims a $10,000 credit for investment, he would pay a $90,000 tax. One of the inequities of the proposed legislation is that the equipment must have a useful life rated for tax purposes of at least four years. This would exclude many fleet users who trade their vehicles every two years or less.
The tax credit would be calculated on the useful life of the items acquired. If it has a useful life of eight years or more, the credit would be 8 per cent of the cost of the equipment; if the item has a useful life of six or seven years, the credit would be 8 per cent of two-thirds of the cost; if the item has a useful life of four or five years, the credit would be one-third of the cost. If a fleet disposed of the equipment before four years, it would have to pay the government the total amount of the credit that had been claimed. After four years, the credit would be pro-rated.
Useful lives are determined by the Treasury Dept. and are listed in Treasury Bulletin F. A businessman may challenge any such listing, but the Treasury makes the final decision. Under current regulations, motor vehicles in commercial use by salesmen have a useful life of three years; other vehicles, excluding those in the utility and construction industries, have a rated life of five years.
The Treasury currently is working on a revised Bulletin F. The suggested useful lives in the bulletin have not been revised since 1942, although items have been added in recent years.
Washington sources report that the useful life of many items will be reduced as much as 20 or 30 per cent. Most of the reductions, of course, will apply to heavy plant equipment, although fleet users are expected to share in the reductions.
However, the tax savings may be less than the 25 to 30 per cent because Bulletin F is only a guideline. It can presently be departed from if a firm can convince the Treasury that its equipment should be written off at a faster rate. And this is what has been happening for years.
Fleet users should be concerned with both proposals. They should contact their Congressmen in Washington to make sure they get a fairer shake in the tax credit legislation and are included favorably in the new Treasury Bulletin F.
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