2007 Tax Changes Impacting Vehicle Programs

As it does every year, the Internal Revenue Service (IRS) has made some highly publicized changes (and some quiet ones) to the codes and standards that affect business vehicle programs. The impact of these changes on your bottom line will largely depend on your organization's current vehicle program.

Standard Federal Rate Hike
As of January 2007, the Standard Federal Rate increased to $.485 per business mile – that’s an increase of $.04 over last year. Resultantly, organizations with cents-per-mile reimbursement programs will experience a 9% increase as compared to 2006 if they have a consistent number of business miles driven as compared to the previous year. For example: If you reimburse 100 business drivers for 15,000 business miles annually, this increase will hit your bottom line to the tune of nearly $60,000 in 2007. A significant year-over-year increase, this change in the IRS cents-per-mile rate reflects the widely fluctuating fuel prices observed in 2006 as well as the projected sustained higher prices for 2007.

To establish the annual per-mile business driving rate, the IRS works closely with Runzheimer International.  Although this standard rate can make sense for low-mileage drivers who make occasional trips to the bank or the office supply store, reimbursing high-mileage road warriors at the federal rate can be a “luxury tax” on your budget. Specifically, a 40,000-annual-business mileage driver will be reimbursed $19,400. That’s more than enough to cover 100% of the annual ownership and operating costs of a $40,000 luxury sedan!

FICA Cap Rises
The FICA tax withholding cap rose to $97,500 for 2007. This change is not a positive one for your organization or its employees if you currently pay a monthly taxable allowance for use of personal vehicles for business purposes. Already the most expensive way to reimburse for business vehicle expenses, a flat rate allowance just took on additional FICA tax costs. The $3,300 increase in the FICA maximum could cost as much as $204 annually for each driver who is still under the FICA max; and it will reduce that driver’s net take-home by another $204.

Negative consequences will also result for corporate fleets as the rise in the FICA cap will increase the cost impact of the Annual Lease Valuation process for companies that provide company cars.  It may be time for these organizations to evaluate the benefits as compared to the costs and liability risk of company-provided vehicles.

This annual increase in the FICA tax further highlights the value of nontaxable allowances that meet IRS code and avoid withholding taxes altogether. There is no impact on the driver or the company related to this FICA change for 2007 for organizations that use a nontaxed fixed and variable rate (FAVR) allowance.

More Wiggle Room for FAVR

This year the IRS again increased the top limit on the maximum value of the standard vehicle that can be used under a FAVR program.  Revenue Procedure 2006-49 allows reimbursements to be based on "up to a $27,600 vehicle."  A $200 increase from last year, this change results in an increase of approximately $66 per year for a typical depreciation calculation, if the company wants to sweeten the plan a little for its drivers. If cost control is the goal, there is no requirement for companies to establish an increase.

In the used vehicle marketplace, there are generally three ways to dispose of your vehicle. You can trade it in for a newer vehicle, you can donate your vehicle to charity, or you can sell your vehicle on your own. Depending on the age and condition of the vehicle, selling it yourself may bring you the best return.

Investing a bit of elbow grease in spiffing up your vehicle's exterior and interior is a good start, and costs you little but time. This is the most economical way to get your vehicle ready for market.

Using a professional detailer will cost a few dollars, but may add even more appeal and speed up the sale. Detailers will thoroughly clean and polish inside and out, even doing a "deep-clean" under the hood, making the engine block look like new. Many professional detailers can also handle small dent repair and paint touch-up.

Larger body work problems or windshield cracks can lead to more costly repairs. You can either have this done by professionals prior to putting your vehicle on the market, or you can simply get estimates and use those in the negotiating process.

Next, check the tires. If there isn't much tread left, you can count on losing some ground during the tire-kicking phase. By investing in a decent set of used or new tires, you could recapture your investment and maintain your asking price.

Once the vehicle is ready for sale, make sure you have the title in proper order. Also, have any maintenance records or vehicle history available for buyers. Do not hide any details of accidents or damage.

Once negotiations are made, include an "as is" statement in your bill of sale. Accept only a cashier's check or a money order as payment, and sign over the title.

Each of us can likely recall at least one story in which we were the victims of road rage. In fact, nearly 60 percent of commuters experience road rage during their treks to and from the office, according to CareerBuilder.com.

It's not unusual for victims, no matter how even-tempered, to morph into instigators if they've had a bad week or been under unrelenting pressure. Rosemary Haefner, Vice President of Human Resources at CareerBuilder.com, offers the following helpful hints employers may want to pass along to their employees.

Tips to Keep Your Cool on the Road

1. Lose the lead foot – Leave a few minutes early to prevent stress, avoid losing your temper, and weaving through traffic.

2. It's nothing personal – People who drive erratically and make poor decisions are not out to get you, they are usually just bad drivers.

3. Banish fatigue and hunger – Tired drivers tend to be more agitated behind the wheel. Avoid skipping a meal as you may become more easily annoyed with other drivers.

4. Easy listening – Soothing music or books on tape can help you to relax during bumper to bumper delays.

5. Breathe – The next time you want to emphatically communicate your opinion of another’s driving through “sign language,” grip the wheel and take a few deep breaths instead. It can help you stay centered and control your stress levels.

Innocent victim, assertive commuter, or aggressive instigator? Keep these tips in mind for a more relaxing commute.

Source: CareerBuilder.com

According to the Governors Highway Safety Association, use of cell phones while driving has increasingly become a highway safety issue. Although no state completely bans all types of cell phone use (handheld and hands-free), several states have legislated cell phone use laws or restrictions. In some cases, municipalities have instituted local regulations. It pays for phone-loving drivers to know which states curtail cell-phone use in order to avoid a citation.

As of January 2007, the following cell phone use restrictions are on the books:

Arizona, Arkansas, California, Connecticut, Delaware, District of Columbia, Illinois, Massachusetts, New Jersey, Rhode Island, Tennessee, and Texas: School bus drivers may not use cell phones while operating a school bus, except for emergencies.

Colorado, Connecticut, Delaware, District of Columbia, Illinois, Maine, Minnesota, New Jersey, Rhode Island, Tennessee, Texas, and West Virginia: Learning Permit holders may not use cell phones when driving.

Delaware, Maine, New Jersey, Tennessee, Texas, and West Virginia: Intermediate License holders may not use a cell phone when behind the wheel.

Connecticut, Illinois, North Carolina, and Rhode Island: Persons under 18 may not operate a motor vehicle while using a cell phone.

California, Connecticut, District of Columbia, New Jersey, and New York: There is a ban on all handheld cell phones in these states, except for emergencies.

Illinois, Massachusetts, Michigan, New Mexico, Ohio, and Pennsylvania: These states have set restrictions on handheld cell phones by jurisdiction.

Whether or not there's a law in your state restricting cell phone use while driving, keep in mind that statistics indicate cell phones may pose a safety risk while driving. Additionally, check your organization's business vehicle policy as many organizations prohibit the use of handheld cell phones while driving for business purposes.

Sources: Governors Highway Safety Association, Insurance Institute for Highway Safety