Our office of CPA NYC professionals advises that transportation-related businesses have some specific federal tax issues that we would like to highlight and also encourage you to discuss with us in person. It is easy in the daily rush of running a business to overlook or postpone reviewing tax laws that could, in some cases, generate savings.In addition to the information below, please contact our nyc cpa firm for guidance.
The airline industry is subject to numerous fees and federal excise taxes, which are designed to fund various federal airline programs and agencies, such as the Federal Aviation Administration and the Airport and Airway Trust Fund. The FAA regulates and oversees the entire airline industry and the Trust Fund exists to provide funding for capital improvements to the U.S. airport and airway system.
There are four fees that the airlines pay directly. These are:
- The Animal and Plant Health Inspection Service (APHIS) aircraft inspection fee on aircraft arriving from outside the United States;
- The 4.4-cent-per-gallon tax on jet fuel used in commercial aviation by the airline industry;
- The overflight fee, generally levied on non-U.S. airlines using United States airspace; and
- The air carrier security fee that funds the Transportation Security Administration (TSA), which administers airport safety and security.
There are also five excise taxes that go toward the Airport and Airway Trust Fund. These taxes are:
- Ticket taxes imposed on commercial passenger transportation;
- Tax imposed on freight transportation;
- Two separate fuels taxes imposed on gasoline and jet fuel used in commercial aviation and non-commercial aviation;
- For fuel used after March 31, 2012, a fuel surtax applied to flights made as part of a fractional ownership program; and
- A two-part excise tax on most domestic air passenger transportation, involving first a tax of 7.5 percent of the amount paid for the transportation and, second, a tax on each flight segment, which is defined as transportation involving a single take-off and a single landing.
International travel. There is a $12 per person tax imposed on any amount paid for international air transportation purchased by a passenger for flights that begin or end in the United States. However, the tax is imposed in lieu of the taxes imposed on domestic air passenger transportation.
The tax was originally scheduled to expire after September 30, 2007, but the FAA Modernization and Reform Act of 2012 extended the international travel tax through September 30, 2015. The tax is indexed annually for inflation measured by changes in the Consumer Price Index rounded to the nearest 10 cents. For 2013 the tax is $17.20.
Reporting and payment of taxes. Air transportation taxes are reported quarterly on Form 720, Quarterly Federal Excise Tax Return. Payment of the tax, however, is accomplished by semi-monthly deposits. Beginning January 1, 2011, under Code Sec. 6302 regulations, all depository excise taxes reported on Form 720 must be deposited electronically using the Electronic Federal Tax Payment System (EFTPS).
The trucking industry is affected by the fuel taxes imposed on gasoline and diesel fuel, both at the federal and state levels. These fuel taxes, with the exception of the tax on aviation fuel, are generally deposited into the Highway Trust Fund where they are later used to maintain federal highways and other state-maintained roads. Among the fuel taxes that relate to the trucking industry are the gasoline fuel tax and the diesel fuel tax. The tax on gasoline (meaning all products commonly or commercially known or sold as gasoline with an octane rating of 75 or more that are suitable for use as a motor fuel) is currently 18.4 cents per gallon. Diesel fuel is generally taxed at a rate of 24.4 cents per gallon. Both the gasoline and diesel taxes include the 0.1 cent Leaking Underground Storage Tank (LUST) tax, which partly funds the oversight of petroleum release cleanups.
Highway vehicle use tax. Certain drivers of heavy motor vehicles, such as trucks and trailer combinations equipped to carry or haul 55,000 pounds or more, are subject to the heavy highway vehicle use tax. The Tax Code generally defines a “highway motor vehicle” as a truck or bus that is propelled by its own motor and is designed to carry a load over public highways. Because trailers and semitrailers are not powered by their own motors, their use alone is not subject to the heavy vehicle use tax. However, when used in combination with highway trucks and truck-tractors, they are included in the computation of the taxable gross vehicle weight of the highway motor vehicle. On the other hand, vans, pick-up trucks and panel trucks generally weigh less than 55,000 pounds and therefore are not subject to the annual use tax.
The tax applies to vehicles that are required to be registered in the United States, U.S. Territory, Canada and Mexico. Generally, the tax is paid by the person in whose name the vehicle is registered. Taxpayers must report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return, which can also be filed electronically. In fact, taxpayers with 25 or more vehicles for any period are required to electronically file Form 2290.
Retail tax. In addition to the fuel taxes and highway vehicle use tax, certain retail sales of trucks and trailers are subject to a 12-percent retail tax. In general, the tax is imposed on the first retail sale of tractors designed for highway transportation use (but see below for an exemption), heavy trucks over 33,000 pounds, and trailers over 26,000 pounds.
Worker misclassification. Another area of the tax law in which many trucking companies find themselves particularly involved is that of worker classification; in particular, the misclassification of some drivers as independent contractors rather than employees. The IRS estimates that employers misclassify millions of workers as independent contractors instead of employees, thus avoiding the payment of employment taxes. The transportation industry has been identified by the IRS as one of the areas in which misclassification of employees as independent contractors can be particularly acute. The IRS currently offers a Voluntary Classification Settlement Program (VCSP) that enables employers to rectify past misclassification of employees as independent contractors at a reduced cost.
The basic test for determining whether a driver is an independent contractor is the degree of control the persons for whom he supplies services exerts over his work. However, if the driver does not own an interest in the truck or vehicle, it is unlikely that he will be considered to be an independent contractor. For example, the IRS has ruled that a truck driver was an employee when the firm provided the truck and other major equipment, paid the worker on a commission basis, and required the worker to report to the firm by telephone on a regular basis while performing his duties on a full-time basis. Following the same line of reasoning, car shuttlers who return cars rented for one-way trips from an auto rental agency are not independent contractors even though they are paid on a per-job basis.
The boating and shipping industry is also subject to federal excise taxes. For example, a harbor maintenance tax (HMT) tax is imposed on the use of certain ports and goes to the Harbor Maintenance Trust Fund, which is used to share the cost of financing various federal harbor and water projects.
In addition, a $3 per passenger tax is imposed on persons providing ship voyages for passengers, cruise ships for example. The tax is assessed only once for each passenger, either on embarkation or disembarkation in the United States. For purposes of the $3 passenger tax, “embarkation” and “disembarkation” mean the beginning and end of the voyage, respectively, regardless of intermittent stops.
As part of the general business credit taxpayers may claim a credit for qualified railroad track maintenance expenditures (QRTME) paid or incurred during tax years that begin after December 31 2004, and before January 1, 2014. The railroad track maintenance credit (RTMC) generally is equal to 50 percent of the qualified railroad track maintenance expenditures (QRTME) paid or incurred by certain eligible railroad taxpayers during the tax year. Additionally, a railroad track maintenance credit determined after 2007 can be used to offset both regular tax and alternative minimum tax (AMT) liability. The credit can be claimed on Form 8900, Qualified Railroad Track Maintenance Credit.
Whether a taxpayer is part of the airline, trucking, boating, or railroad industry, it will need to purchase equipment. These costs of this equipment most likely may be deducted from a taxpayer’s income. However, they may also be subject to the Tax Code’s rules governing the schedule for depreciation deductions. Taxpayers should also note the applicable provisions governing bonus depreciation under Code Sec. 168. Bonus depreciation can enable certain taxpayers to deduct more of their depreciable costs sooner, which could also result in significant tax savings.
We have highlighted only some of the many federal tax laws that impact the transportation and freight industry. Every business is unique with particular tax considerations. Please contact our nyc cpa office so we can set a time to discuss your business in more detail.