There are many tax-related considerations likely to arise when acquiring and operating commercial motor vehicles. The law recognizes two types of property: real and personal. Personal property is any movable or intangible item that is not permanently attached to real estate. Fleet vehicles are considered personal property because they are mobile, not affixed to a particular parcel of land, and are tangible pieces of personal property.
The applicability of certain rules and regulations vary depending on:
- the nature of the acquisition (lease vs. purchase)
- the vehicle’s use (garaged/stored, used on public roads or highways, interstate and/or intrastate activity, goods/people hauled, etc.)
- the vehicle’s attributes (GVWR, towing, fuel type, etc.)
Below, we identify many of the tax-related matters that may arise in your acquisition, use and/or maintenance of commercial fleet vehicles.
State and Local Municipality Taxes
Generally, ad valorem taxes are those additional charges affixed to an item (or personal property) that represents a percentage of its value. Some jurisdictions call their ad valorem tax a “personal property tax”.
Unlike personal property or ad valorem tax, which is levied based off the value of your vehicle, sales tax is an additional charge added to the acquisition or lease payment of your vehicle (depending on the state) representing a percentage of the purchase price.
Unlike sales or personal property taxes, excise taxes are imposed not on the commercial vehicle itself, but its use. In other words, motor carriers enjoy the privilege of operating their commercial vehicles on public roads. It is for this very reason states like New York, New Mexico, Oregon, and Kentucky have codified a highway use tax, which is assessed based on the miles any qualifying commercial vehicles traverse within each jurisdiction.
Storage, Use, and/or Consumption Tax
Storage, use and/or consumption taxes are, generally, a form of an excise tax. However, it is important to identify this type of tax separately as the concept arises in areas of licensing and titling, namely, proportional registration (i.e., registration under the International Registration Plan, or “IRP”). While IRP registration divvies up registration fees and allocates to member jurisdictions accordingly, many IRP vehicles are likely titled or registered in a state in which the commercial vehicle does not “reside”. For example, a vehicle is titled in Texas and is registered in Texas under your IRP account. However, it is garaged in Utah and crosses state lines but returns “home” to Utah as its garaged location. This scenario constitutes a storage under general principles. The vehicle is personal property that is stored in Utah, and while Utah will receive a portion of the registration fees paid to Texas, but not any taxes related to acquisition, use or storage of the commercial vehicle. Use or storage taxes often arise in circumstances where a retail transaction occurs outside of the state in which the vehicle “lives” or is used but the state that is mostly burdened with housing the vehicle is left without. Essentially, the purpose of the use tax, then, is to ensure no evasion of states sales taxes occur, thus unfairly benefitting one jurisdiction while burdening another.
IRS Form 2290 Heavy Vehicle Use Tax
The most common tax imposed by the federal government as it relates to commercial vehicles is the Heavy Vehicle Use Tax. As its name suggests, this tax is a form of excise or use tax imposed on vehicles weighing 55,000 pounds or more.
Commercial vehicle taxation has many considerations as well as consequences if you are not compliant. Delinquency on any of these taxes can have trickle down effects and will impact your fleet and your ability to operate commercial vehicles compliantly. If you have any questions or concerns, please contact a member of your Account Team to ensure your commercial fleet vehicles are properly credentialed, which includes ensuring all applicable taxes are paid to all governing authorities, whether it be a county, state DMV or the IRS.