Wednesday, July 24, 2024

“The United States has a system of taxation by confession.” –Hugo Black

"Hey...wanna go for a ride later? I got the keys and a gas card!"

[Author’s note: The post kind of piggybacks Alison Slider’s article in the D-G today.  One slight correction to that article, however; it was a current employee who tipped me off about the improper car use, not a former employee.]

In this post, I wrote that there were three explanations for the apparent discrepancies between what Alice Stewart told me about state-car logs and what she told Jason Tolbert.

First, it’s entirely possible that there are no logs, and Stewart is simply assuming that there’s no misuse of state vehicles and that no vehicles are being taken home by employees who are not supposed to do so.  […]

The second explanation [is that she] is lying to Tolbert[,] telling me the truth that there are no logs that would support her position or answer my questions, and she was just pretending that there were in the hopes that Jason would not ask to see them. […]

The final explanation, of course, is […] that Stewart was telling Tolbert the truth and lying to me when she said that there were no logs.

Well, despite the fact that I started the list of potential explanations with the one that said she was telling the truth, Ms. Stewart was not overly fond of my suggesting that she might be lying.  I believe her exact quote was that I “should have asked her about it” before I wrote anything as a “matter of professional courtesy.”  She then explained the discrepancy by saying that there were no logs, and what she’d told Tolbert was that, if someone needed a car, he or she checked the car out from his or her supervisor.  I asked the obvious follow-up — do the supervisors keep records? — and she told me that they did not.

Which means, of course, that the first possible explanation I’d posited was the correct one.  Ms. Stewart was not lying; there were no logs of any kind, and she was simply assuming that there was no abuse of Secretary-owned vehicles.  Fair enough.

But think about that for a second: if there is no log showing who drove what, where, why, and for how many miles, there is no way for any of the employees who drive Secretary-owned vehicles to comply with federal tax laws regarding the vehicles.

After all, IRS Publication 15(b) states, in pertinent part:

Qualified Transportation Benefits

This exclusion applies to the following benefits.

  • A ride in a commuter highway vehicle between the employee’s home and work place. […]

The exclusion applies whether you provide only one or a combination of these benefits to your employees. […]

Qualified transportation benefits can be provided directly by you or through a bona fide reimbursement arrangement. […]

Commuter highway vehicle. A commuter highway vehicle is any highway vehicle that seats at least 6 adults (not including the driver). In addition, you must reasonably expect that at least 80% of the vehicle mileage will be for transporting employees between their homes and work place with employees occupying at least one-half the vehicle’s seats (not including the driver’s).

Ms. Stewart told Tolbert that employees were not using state-owned vehicles to commute to and from their respective houses, so it would be logically impossible for anyone in that office to claim that they reasonably expected that any of the 7+ passenger vehicles in the pool were used at least 80% of the time for home-to-work commutes.

Additionally under Pub. 15(b):

Vehicle allocation rules. If you provide a car for an employee’s use, the amount you can exclude as a working condition benefit is the amount that would be allowable as a deductible business expense if the employee paid for its use. If the employee uses the car for both business and personal use, the value of the working condition benefit is the part determined to be for business use of the vehicle. See Business use of your car under Personal versus Business Expenses in chapter 1 of Publication 535.

So we go to chapter 1 of Publication 535 to see how you would value the use of the car if you were using your own car for business:

Business use of your car. If you use your car exclusively in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Generally, commuting expenses between your home and your business location, within the area of your tax home, are not deductible. You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. For 2010, the standard mileage rate is 50 cents a mile for all business miles driven before January 1, 2011.

Synthesizing the two sections, if your employer provides a vehicle that you use for both business and personal use, you can pay taxes on the actual value of your personal use or you can use the Cents-Per-Mile calculation. Going back to Pub. 15(b), we see how the Cents-Per-Mile Rule works:

Cents-Per-Mile Rule

Under this rule, you determine the value of a vehicle you provide to an employee for personal use by multiplying the standard mileage rate by the total miles the employee drives the vehicle for personal purposes. Personal use is any use of the vehicle other than use in your trade or business. This amount must be included in the employee’s wages or reimbursed by the employee. For 2011, the standard mileage rate is 51 cents per mile.

You can use the cents-per-mile rule if either of the following requirements is met.

  • You reasonably expect the vehicle to be regularly used in your trade or business throughout the calendar year (or for a shorter period during which you own or lease it).
  • The vehicle meets the mileage test.

And here’s where we see the problem with the Secretary of State’s Office’s not keeping mileage or usage logs: without such logs, how can you figure out the taxable mileage?  (Or the amount of gas purchased with a Secretary of State card that was used for personal mileage?  Or anything else you would need to comply with federal tax laws?)

Answer: You can’t, so you pretend like no one ever uses a car for personal use in any way, shape, or form, and you hope that everyone ignores that the facts don’t support this assertion.

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