All three branches of government — specifically, the Senate, the Internal Revenue Service and U.S. Tax Court — have produced a variety of actions lately with implications for trucking.
To start with the most positive news, the IRS announced at the beginning of a hearing in late February that it would take no immediate action on reclassifying “mobile machinery” as being subject to federal highway taxes.
Last June, the agency had thrown a scare into operators of mobile cranes, concrete pumpers, logging, oilfield, drilling and utility equipment. At the time, the IRS proposed to end the exemption that had existed since the Highway Trust Fund was created in 1956 for self-propelled equipment that works off-road but reaches a job site under its own power on the highway.
An end to the exemption would mean that new equipment would be subject to the 12% excise tax on the first sale of highway vehicles, and existing as well as new equipment would be taxable on fuel, tires and highway use.
The proposal generated more than 1,100 letters of protest, including one from both the chairman and the ranking member of the Senate Finance Committee, Sens. Charles Grassley (R-IA) and Max Baucus (D-MT). Grassley and Baucus urged the IRS to delay a final decision until the Committee had a chance to consider the issue in connection with its review of all highway taxes.
That review will occur later this year, when the re-authorization of the “TEA-21” highway spending law makes its way through the Senate. TEA-21 expires September 30, and its spending and tax provisions must both be renewed.
At the IRS hearing on February 27, at which 29 organizations testified against the change, officials announced they would not decide on whether to change current regulations until after Congress has had a chance to act.
Meanwhile, the IRS is still pursuing trucking companies that misclassify employees as independent contractors. On February 26, the U.S. Tax Court sustained the IRS in two similar cases involving the same accountant and same lawyer (Mike J. Graham v. Commissioner and Specialty Transport & Delivery Services vs. Commissioner). The truck owner-operators had incorporated their businesses, a legitimate practice. But the corporations had not reported payments to the owner-driver as wages, even though they performed all executive, customer relations, and driving services for the companies.
The companies contended that they were following a “longstanding recognized practice” and were entitled to treat the workers as non-employees, but the IRS and Tax Court rejected that position. The court ruled that normally a corporate officer is an employee and these companies had no basis for treating them otherwise.
The bottom line: The delay in a decision about ending the mobile machinery exemption shows the value of making your views heard, both directly to the IRS and — especially — to the lawmakers with authority to rewrite the tax law. And the two Tax Court decisions show that even an area that has largely been dormant for several years, such as employee-independent contractor classification, can still generate controversy between taxpayers and government.
The message for trucking: Staying on top of tax law means keeping an eye on all three rings of the government circus.