Fleet Financials Still Focused on New Tax Laws
Tax season has long been considered one of the most challenging times of year for citizens and businesses alike. Last year’s Tax Cuts and Jobs Act (TCJA) is reverberating through many industries this year, and the trucking industry is bracing for the continued changes that the new tax laws will bring to their fleet financials.
According to the American Trucking Association (ATA), the trucking industry moves 71% of the nation’s freight by weight. That translates to $738.9 billon in gross freight revenues from trucking. With those kinds of numbers, it is clear that the trucking industry will pay plenty in taxes. The numbers that have been recorded since 2015 illustrate the impact that fleet financial and tax responsibilities have on the country’s economy.
- Commercial trucks, which make up 12.8% of all registered vehicles, paid $41.3 billion in federal and state highway-user taxes in 2015—$18.7 billion in federal highway-user taxes and $22.6 billion in state highway-user taxes.
- 24.4¢ in federal fuel tax paid for each gallon of diesel fuel as of January 2017.
- 18.4¢ in federal fuel tax paid for each gallon of gasoline as of January 2017.
- 27.4¢ paid on average in state fuel tax for each gallon of diesel fuel as of 2016.
- 23.2¢ paid on average in state fuel tax for each gallon of gasoline as of 2016.
Trucking companies pay higher taxes than any other mode of transportation and one of the highest rates of any business sector, according a study published by New York University. When payroll and other taxes are added in, marginal tax rates can exceed 50%, according to the ATA. So it is clear how low the margin of error and profitability is in fleet financials. The intent of the TCJA tax reform was to address this inequality as well as boost economic growth, raise wages, and create more jobs.
While the new laws have been implemented to encourage growth within the industry as well as support national infrastructure, the changes may prove to impact fleet financials for large carriers very differently from those for smaller fleets. That said, fleets across the nation are adapting to make the most of the federal Tax Cuts and Jobs Act by developing strategies and shifting models to better accommodate the tax reform rules based on the size and classification of their company.
3 Types of Business Entities in Trucking
1. C corporation: Traditional structure of companies traded on the stock market, which can be worth millions or even billions in value.
2. S corporation: Income is passed through to the partners of the company. S corps are commonly used for family-owned businesses, limited liability partnerships (LLPs), and limited liability companies (LLCs).
3. Sole proprietors: Independent contractors operating with one truck.
Companies like EFS are addressing the new laws by supporting the industry with the tools to create efficiencies and control over spending as well as provide strategies to effectively manage the new tax model. Fuel taxes and transportation fees have more impact on fleet financials than any other taxed expense. EFS solutions help mid-to-large fleets with more than 50 trucks to better manage and control fuel purchases. They can also provide meaningful data and analytics to inform smarter decisions on fuel purchases and volume performance. These insights can help to trim miles and costs so as to tighten budgets, especially where tax laws apply. Resources and data from fuel card purchasing behaviors to industry trends and auditing tools, help to keep fleet financials strong and fleet managers informed so they can find savings while streamlining fleet operations.
Benefits of OTR Analytics and Reporting
- Find opportunities to cut costs
- Accurately forecast and budget fleet expenses
- Identify purchasing anomalies and misuse
- Find out how you’re performing against your peers
- Take the work out of fuel tax reporting
It’s safe to say that fleet managers are paying attention to the new tax laws and benefits because they mean an overall lower tax rate paid by businesses. In fact, the primary goal of this tax reform was to enhance business by reducing the corporate tax rate within every entity. With the new tax reform, C corps dropped from 35% to 21% while S corps benefited with a new 20% deduction for all domestic qualified business income. Along with these top-line cuts are two other important factors to consider as well.
1. Changes to Depreciation and Equipment Transactions
For equipment acquired and placed in service after September 27, 2017, taxpayers will be allowed to write off 100 percent of the cost under the revised bonus depreciation rules. The 100 percent write-off will begin to phase down 20 percent per year starting in 2023 until it is scheduled to sunset at the end of 2026. Under the old law, bonus depreciation applied only to new property, but has now been expanded to include used property as well. Keep in mind that many state jurisdictions do not allow bonus depreciation and require an adjustment to taxable income.
2. Changes to Per-Diem Programs
Many trucking companies have successfully implemented per-diem programs to aid in driver retention and put more money in drivers’ pockets. There are no changes in the new tax law to these “company-sponsored” per-diem plans. For companies that have previously considered adding a per-diem plan, but have yet to do so, now is a great time to reconsider your recruiting strategy.
In the larger scheme of things, these changes are still new, and it is likely that the reform will continue to shift and change. But for now, the landscape is looking hopeful, and with strategic partners such as EFS there to help with guidance through fleet financial transparency and control, tax reform might not be as painful as the industry had been expecting.