Major work can mean hefty tax
William Shakespeare knew how to turn a phrase.
As many as 50 expressions used in our everyday language were coined or popularized by The Bard.
“Break the ice,” “Greek to me,” and “dead as a doornail” are just a few that can be attributed to good old Willy.Another is “pound of flesh,” which sadly comes to mind in matters of taxation.
Few things are more aggravating than thinking you’ve paid your taxes only to find out that, lo and behold, the government wants more.I saw this first-hand recently with a fleet in Alberta.
The company bought a tractor for $4,000. They licensed it for interprovincial travel and ran it for two years before they had to put in a new engine.
The engine replacement cost $15,000.When the company tried to license the tractor under a new carrier they got assessed a big bill for sales tax. Why? Parts and repair labor on interjurisdictional vehicles are exempt from sales tax under the prorated vehicle tax (PVT) unless the work results in a substantial change to the taxable value of the vehicle. This is important to consider for anyone trying to stretch the life of an older truck or trailer by making major repairs or modifications.
It’s your responsibility to make sure the cost of capital modifications or additions to a vehicle are included in its taxable value for the purpose of calculating the PVT when the vehicle is next registered.Tanks, pickers, pumping and handling equipment, sleepers, and other equipment that is permanently mounted on the truck must be included in the taxable value on which the PVT is calculated.
Any parts and labor charges related to additions and modifications to the vehicle (not including replacement parts) which are purchased tax free and capitalized are subject to the PVT.
It can be confusing, but to an auditor that’s no excuse.My advice is to check the value of your equipment each and every year when you renew your license plates. Or do it in January, which seems like a good time to review all of your fleet tax compliance requirements.
Here are some points to consider regarding your fleet and your tax liability:
• If you are licensing a vehicle for the first time or just renewing it, you must include major additions or modifications made to the vehicle. Whether new or added later, you must add mounted equipment or permanently affixed components to the purchase price of the vehicle.
• Have you done any major modifications or added mounted equipment to your fleet vehicles? If you bought a cheap truck that needs major work or upfitting (think engine, transmission, body equipment, etc.) you must restate the taxable value for sales tax purposes. That means producing a bill of sale for the original equipment plus proof of any parts purchased or repairs made while you own the vehicle.
• Auditors are looking for red flags. In the case of the $4,000 tractor, a replacement engine that costs more than three times the vehicle’s total taxable value is going to get noticed.
• All of this comes down to auditor discretion. What is a major addition or modification to a vehicle? Well, how long is a piece of string? Review your home jurisdiction’s requirements for sales tax and be forthright and clear with your valuation so there’s no guesswork for the auditor.
If you want to play it fast and loose, it is a foregone conclusion that the taxman will come in and may refuse to budge an inch on your liability. I know this is cold comfort, but as good luck would have it, you are now forewarned.
Sandy Johnson has been managing IFTA, IRP, and other fleet taxes for more than 25 years. She is the author of the book, 7 Things You Need to Know About Fleet Taxes, and operates northstarfleet.com, which provides vehicle tax and license compliance services for trucking operations. She can be reached at 1-877-860-8025 or email@example.com.
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