If you thought the “American Jobs Creation Act” had nothing to do with trucking — or if you didn't think about the act at all — read on.
The bill started as a way to fix a trade dispute with the European Union (EU) over the foreign sales corporation (FSC) provision of the Internal Revenue Code. After the World Trade Organization ruled that FSC was an illegal trade subsidy for U.S. multinationals, the EU imposed a tariff on a wide range of products. That prompted Congress to replace FSC with a tax cut for all domestic manufacturing activity. The reduction may encourage some manufacturers to take on more activities that they currently outsource — such as trucking.
More significantly for trucking, the bill became a magnet for a huge number of special tax breaks. That, in turn, required a bevy of revenue raisers to offset the revenue losses.
Small trucking companies will benefit from a two-year extension of expanded expensing, or immediate deduction, for investments in new equipment. In 2003, Congress temporarily raised the limit on the amount of equipment that small businesses could expense from $25,000 per year to $100,000. The higher limit applied to companies whose total investment in new equipment totaled no more than $400,000, up from $200,000 under the old law. The higher limits, which applied only for 2003 - 2005, are extended to the end of 2007.
Businesses operating as S corporations will be able to have up to 100 shareholders, beginning in 2005. The current limit is 75.
A new tax credit for “biodiesel” and “agri-biodiesel” fuels may make these blends more affordable as substitutes for diesel fuel. However, the Congressional Joint Committee on Taxation estimated there would be only a small revenue loss from this credit, which would apply only in 2005 and 2006, implying the new fuels will add little to supply.
On the revenue-raising side, Congress altered all of the Highway Trust Fund taxes. Numerous changes affect diesel fuel. The most significant changes were to clamp down on the use of mixed fuels. Truckers caught using undyed fuel three times will no longer be eligible for administrative appeals.
Truck owners will no longer be able to pay the heavy vehicle use tax in installments; instead, the full year's tax will be due at once. Companies paying the tax for 25 or more vehicles will have to file electronically. Vehicles registered in Canada or Mexico will no longer get a 25% reduction in tax.
The “mobile machinery exemption” has been added to the tax code, but is limited to equipment that travels no more than 7,500 miles per year on-highway. Mobile machinery includes a variety of power units that transport permanently attached equipment used off-road, such as concrete pumpers, mobile cranes, etc. that travels to jobsites on highways. In addition, owners will have to pay fuel tax, although they can apply for a refund at year's end if they stay below the mileage limit.
The tire tax will now be based on the tire's load rating instead of the weight of the tire itself. The new tax rate is designed to raise the same amount of revenue as the old system, although some owners may pay more — or less — than before. The tire tax will apply to mobile machinery unless the tires are designed exclusively for it.
The bottom line: Although most of the changes are not dramatic, they may present opportunities — or pitfalls. Get with your tax advisor pronto to be sure you understand the implications for your business, because some of the provisions take effect by January 1, 2005, or may be in effect already.