Have you ever reached into the pocket of a coat you haven’t worn for a very long time and pulled out a 20 dollar bill? It’s like winning a mini-lottery!
It’s sort of the same feeling when you find out you can claim a refund of sales tax on exempt goods for your truck.
As you revel in your good fortune, remember that a tax refund is just the government giving back money that you never really owed in the first place. That money belongs to you, so if you’re entitled to refunds, you need a system to claim them.
Prorated Vehicle Tax
There are two types of sales tax that motor carriers should be aware of.
The first is provincial sales tax. British Columbia, Saskatchewan, and Manitoba are the three holdouts still collecting a separate PST (versus the Harmonized Sales Tax, which is administered by the CRA). Vehicles that operate solely within one of these three provinces are fully taxable for PST on the purchase or lease price of the vehicle, as well as on any parts or repair labour. Pretty straightforward. It’s a different story for vehicles that operate beyond the borders of their home province.
Inter-jurisdictional vehicles are exempt from PST but instead are subject to a Prorated Vehicle Tax (PVT), which is payable when you first register the vehicle and on each renewal of the vehicle’s licence under the International Registration Plan (IRP).
Like vehicle registration fees processed under IRP, your home jurisdiction will calculate and distribute the sales tax you owe to each province or state based on the distance the vehicle travelled there. It’s up to you, however, to sort out your tax claims.
I get a lot of calls from companies that, only after an audit, realize that they’ve been missing opportunities for refunds. One big issue is parts and labour on inter-jurisdictional vehicles.
Most parts and labour charges for inter-jurisdictional vehicles (including trailers) are PST-exempt. Tax-free items include parts that you’d define as components on a truck, trailer, or bus. For example, an A/C compressor (and the labour to install it) would be tax free. A/C refrigerant? Not tax-free.
When you buy parts or get your vehicle serviced, make sure the shop or parts supplier records your cab card number on the invoice, since your prorate account number is your tax-exempt ID number. Keep copies of the invoice and your cab card as supporting documents for your claim.
Here’s another scenario that a lot of companies miss.
Let’s say you have a vehicle with a prorated plate break down and you want to temporarily replace it with a non-prorated unit in your fleet. Although you can transfer the registration fees from one vehicle to another, the tax is non-transferrable. When vehicle No. 1 is repaired and ready to go, you can transfer the registration fees back but – and I’m not making this up – you’ll have to pay tax again on the vehicle.
The good news, if you can call it that, is that you can request a refund of a portion of the tax previously paid on vehicle No. 1. Sometimes the amounts are so minor that the process takes more time than it’s worth, but it’s nice to know you have the option. The other downer is that refunds are often at a rate lower than you paid it. Still, money is money if you want to pursue it.
Alberta doesn’t charge PST but Alberta carriers operating in B.C., Saskatchewan, Manitoba still owe prorated sales tax on their equipment.
Most for-hire over-the-road carriers use the IRP process to properly apportion and pay sales taxes. Many private companies do not. When they take non-prorated vehicles into another province for a job, it triggers a need to pay sales tax for temporary use of their vehicles. They don’t realize it until they’re stuck with a bill for a portion of sales tax on their trucks, trailers, pilot cars, and other commercial vehicles. Before they know it, they’re rummaging through the pockets of every coat in the closet, looking for cash to pay the sales tax bill.
Every penny counts right now, so take steps to manage sales tax on inter-jurisdictional equipment. Talk to a tax expert who understands the trucking business and can help you pay what you owe and otherwise keep your money in your wallet where it belongs.
Sandy Johnson has been managing IFTA, IRP, and other fleet taxes for more than 25 years. She operates FleetTaxPro.com, which provides vehicle tax and license compliance services for trucking operations ranging from single vehicles to large fleets. She can be reached at 877-860-8025 or FleetTaxPro.com.