There's No Escaping Fleet and Taxes
While Ben Franklin was right that “death and taxes” may be inevitable, there are ways to lighten a fleet’s bill from local, state, and federal governments.
More than 220 years ago, Benjamin Franklin wrote: “In this world nothing can be said to be certain, except death and taxes.”
While Franklin’s wry 18th century observation still has currency in the 21st and there’s no escaping either, for fleets, they can lessen the tax bill they owe Uncle Sam and the state(s) and local jurisdictions where they do business.
Fleet Financials recently spoke to tax experts from Emkay, LeasePlan, ARI – Automotive Resources International, Merchants Leasing, and Mike Albert Fleet Solutions about fleets’ biggest tax liabilities and some ways they can help lessen the burden for their fleets and companies.
Understanding the Biggest Fleet Tax Liabilities
According to Greg DePace, senior vice president of finance, legal, and corporate administration for Emkay, there is no income tax liability associated with corporate vehicle fleets. “Fleet is an expense,” he explained. “To have an income tax liability, you have to have an income — and, in this way, a fleet doesn’t cost its company money. And, because of this, a fleet can help reduce a company’s income tax liability.”
That being said, a fleet can cost its company money via — not surprisingly — other taxes: namely property and sales tax.
“These taxes have different names in every state. Property tax has names that include ad valorem, excise tax, and ownership tax. Sales tax is also called titling tax and excise tax,” said John Shevlin, director of taxation for LeasePlan. “In addition to these items, the taxes that are included in the price of fuel are also a significant liability to every fleet. These costs can increase dramatically when a lessee decides to relocate a vehicle to another state.”
Fleets must be mindful when moving vehicles between states.
“The difficulty with sales tax is not that it’s a particularly complex calculation; it’s just that there could be 50 different rulebooks,” said Bruce Shaffer, chief financial officer for Mike Albert Fleet Solutions, noting some states charge sales tax up front as opposed to over the lease term.
“A lot of these taxes are based on where the car is garaged, so that can have an impact, too, if you’re changing drivers or moving vehicles around,” Shaffer explained.
Moving a vehicle from a state that doesn’t require up-front taxes to one that does could leave the fleet with a new tax bill to foot.
“Some states will give credit for prior taxes paid, and some states will not. Therefore, you can get double-dipped on a tax on one car because you paid up front on the vehicle for 36 months, and then in month 24 you move it, and that state may not give a credit. So, you’re now going to pay sales tax on a monthly lease payment — potentially up front also — and may not get a credit for taxes paid to another state. It’s all very complicated and complex, so you just need to be aware of what could happen. You might be in a case where you can’t avoid it, but if you can plan properly and think about that, then it becomes a managed cost again,” Shaffer advised.