Tax Regulations on Employer-Provided Vehicles

The Government Finance Officers Association (GFOA) believes that state and local governments should not be subject to the Internal Revenue Service regulations that require that the value of an employer-provided vehicle be included in the compensation of their employees. These regulations create onerous and costly administrative recordkeeping requirements, as well as mandate increased employment taxes and pension and benefit costs for state and local governments without regard to the unique nature of governmental responsibilities. The regulations ignore the following:

• In many jurisdictions it is necessary for government officials, safety officers, and public service employees to be on-call twenty-four hours a day. A take-home vehicle allows these individuals to respond immediately to emergency situations. Additionally, police officers are required or encouraged to use marked vehicles on off-duty hours as a crime prevention technique.
• Most state and local government salaries are set by statute or union-negotiated contract. Charging an employee with the personal use of an employer-provided automobile has the effect of raising compensation without considering legal restrictions or contractual agreements.
• A major difference in employment taxes between the private and public sectors is that these taxes are a deductible expense for businesses, but not for state or local government. Therefore, the 85 percent of state and local government that participate in social security must pay the total cost of the increase in employment taxes unlike the private sector that can reduce their liability through tax deductions. Moreover, pension, life insurance premiums and other employment benefits that are calculated as a percentage of salary will be increased.
• Many jurisdictions require employees to commute in government vehicles for the convenience of the employer and limit the use of such vehicles to official purposes. This arrangement eliminates the cost of providing a secured parking area and allows for efficient dispatch of field representatives to site locations.
• State and local government decisions on the purchase and use of employer-provided automobiles are not "tax-motivated" as they are in the private sector. Therefore, there is no opportunity for abuse and no need for corrective action.

The GFOA, therefore, concludes that state and local governments must be exempted from these overly restrictive regulations.

• Publication date: May 1985