This is shaping up to be the year of many possible tax changes for trucking — good, bad and questionable. In fact, some have already occurred. When the new calendar went up on the wall, the “wage base” (maximum amount of taxable wages) for social security rose, while the mileage reimbursement rate for business use of a personal vehicle dropped from 36.5 to 36¢/mile.
Perhaps most important for carriers facing losses, a temporary expansion of net operating loss carrybacks from two years to five expired. Congress passed the provision as part of last year's “stimulus” bill but made it applicable only for tax years ending in 2001 or 2002. But the sputtering recovery means many carriers will be reporting losses this year. For those that bled red ink or eked out only small profits in '01 and '02, a two-year carryback may not be sufficient to soak up losses in '03.
The Bush Administration is reportedly contemplating a variety of new tax initiatives, including a speedup of individual rate cuts currently scheduled for '04 and '06, partial relief from double taxation of corporate profits, and perhaps other investment incentives.
Carriers should keep an eye on excise taxes as well. This year the House Ways and Means Committee and Senate Finance Committee will have to decide how much, and how, to extend or increase the Highway Trust Fund taxes in conjunction with the replacement for the highway spending program. In December, the chairman of the House Transportation and Infrastructure Committee, Rep. Don Young (R-AK), made waves by advocating a 2¢/yr. increase in fuel taxes. That would bring the federal diesel fuel tax from 24.4¢/gal. currently to 36.4¢ by '09, and the gasoline tax from 18.4¢ to 20.4¢. However, the Administration opposes any increase in fuel taxes, and no members of Ways and Means have endorsed Young's initiative.
On the Senate side, the new chair of the subcommittee that will write the spending piece of the highway bill, Sen. James Inhofe (R-OK), has expressed interest in indexing fuel taxes, as more than 10 states do. At the current rate of inflation (2% or less), indexing would equate to less than half a cent per year. Other senators have also sounded sympathetic to indexing.
For its part, the Administration is unlikely to support even this degree of revenue-raising. Instead, it seems interested in making structural changes in trust fund taxes to reduce both the burden on taxpayers and the amount of evasion. In particular, the heavy-vehicle use tax, which is paid annually or quarterly by hundreds of thousands of individual truck owners, might be replaced by increasing the fuel, tire or new-vehicle taxes.
The new-vehicle tax, currently imposed at a 12% rate on the first retail sales price, is full of thorny interpretive issues and creates inequities between vehicles that have an identical impact on the highway system but are priced differently. A possible replacement would be to base the tax on horsepower or some other measure of load capacity. Similarly, the tire tax, now levied at a rate of 50¢/lb. on heavy tires (with reduced rates for 40-90-lb. tires), might be based instead on a tire's load rating.
The bottom line: More than in most years, carriers need to pay attention to what the Administration recommends in its early-February budget and its highway reauthorization proposals. The highway committees will also be trying to influence the shape of trust fund taxes. But, as always, the actual bills for all tax changes — payroll, income, and excise — will be written in the Ways and Means and Finance Committees. Trucking executives need to make their views known in a lot of offices in Washington.