As Congress wrestles with high-visibility tax changes, two sets of initiatives that could have important effects on trucking go unnoticed. One is the IRS's recently announced “priority guidance plan” — rulemaking projects it would like to finish by June 2002. The other set contains hundreds of possible tax code simplifications assembled by the Joint Committee on Taxation.
The IRS plan includes an item that could affect fleets: guidance as to the period over which taxpayers can deduct the cost of new and replacement truck tires. One possibility is to require that tires bought or installed with new vehicles be treated as part of the vehicle, even though the tires are replaced much faster than the vehicle's cost can be written off. Those write-off periods are three years for tractors and five for trucks and trailers. In exchange, replacement tires could be expensed, i.e., fully deducted in the year of purchase. The IRS has not indicated if it will adopt this method.
The plan also lists several excise tax projects, including guidance regarding the definition of highway vehicles for purposes of the new-vehicle excise tax. This is an area in which many taxpayers have received case-by-case rulings, and a more comprehensive approach may be warranted. Other projects concern the definition of diesel fuel and final rules regarding deposits of excise taxes.
Companies that contract for labor, whether drivers or others, should look out for regulations relating to the definition of employer under the tax code section that defines employee leasing. This was a hugely contentious subject for the industry in the mid-1980s, as the IRS proposed — and later withdrew — regulations that would have turned thousands of owner-operators into employees for purposes of calculating pensions and other benefits. Meanwhile, carriers with multiemployer health and welfare plans should watch for guidance relating to the refund of mistaken contribution and withdrawal liability payments.
Companies that pay for use of employee-owned heavy equipment should keep an eye out for guidance as to whether such payments are rent, wages or something else. If any trucking companies still use the once-common two-check system for paying owner-drivers, this guidance may affect them as well.
The Joint Tax Committee does not have the power to put its proposals into effect, unlike the items the IRS proposes to do itself. However, it can propose more radical changes, since it answers to Congress, which can change the underlying law, not just the rules interpreting it. These recommendations deserve heed.
The key for trucking is eliminating or consolidating nonfuel highway excise taxes. However, that may have to be offset by increasing fuel taxes. Elimination would result in a savings for firms now burdened by the 12% tax on new equipment, the tire tax, and the annual heavy vehicle use tax. But consolidation of these taxes into a single nonfuel tax could be accomplished by imposing a weight-distance tax. And if the heavy vehicle use tax is retained, the staff recommends eliminating the quarterly payment option.
The bottom line: Will trucking wind up under the radar or under the gun? Enactment of a major tax cut might keep IRS rulemakers so busy that they never get to their own “to-do” list, and Congress may not show an appetite for the Joint Tax staff's less “sexy” proposals. However, top lawmakers have expressed interest in simplification and they may adopt ideas from both the IRS and their own staff. Carriers would be well advised to learn what options are being discussed.