Purpose

To provide instructions for reporting the taxable value of employer-provided vehicles for 2006.

Affected Employees

Employees with employer-provided vehicles

Effective Date(s)

Immediately

Background

Employers (agencies) providing a vehicle to an employee, which the employee may use for personal use, must include in the employee’s wages an amount that represents the value the employee received for personal use of the vehicle.  The employee must report to the employer all business use of the vehicle.  If an employee fails to report business use, all miles driven are defined as personal use by the employee and the value is included in the employee’s income.

OSC will report the value of personal use of an employer-provided vehicle, for the period November 1, 2005 through October 31, 2006 as income on the 2006 W-2 Statement. The taxable amounts for 2006 should be reported as soon as possible, but no later than Pay Periods 18-Lag and 19-Current.

Determining the Value

The following rules are in effect for the reporting period:

Cents-Per-Mile Rule

Employees may use the cents-per-mile rule if either of the following requirements is met:

• Vehicle is expected to be regularly used for business throughout the calendar year (or for a shorter period during which the vehicle is owned or leased).
• Vehicle meets the mileage test that the vehicle is actually driven at least 10,000 miles during the year. If the vehicle is owned or leased only part of the year, reduce the 10,000 mile requirement proportionately.

For 2006 reporting, the standard mileage rate is 48.5 cents a mile for the period of November 1, 2005 through December 31, 2005.  The standard mileage rate for the period of January 1, 2006 through October 31, 2006 has been decreased to 44.5 cents a mile.  The cents-per-mile rule cannot be used for vehicles that were first made available to employees in 2006 if the fair market value exceeds $15,000 for a passenger automobile and $16,400 for a truck or van.  The term “trucks and vans” refers to passenger automobiles that are built on a truck chassis, including minivans and sport utility vehicles (SUVs) that are built on a truck chassis.

If gasoline is not supplied or reimbursed, the rate per mile is 43.0 cents per mile for the period of November 1, 2005 through December 31, 2005 and 39.0 cents per mile for the period of January 1, 2006 through October 31, 2006. 

Commuting Rule

Commuting is valued at $1.50 each way ($3.00 per round trip) for each day the vehicle is used for commuting. If more than one employee commutes in the vehicle, this value applies to each employee.  This amount must be included in the employee’s wages or reimbursed by the employee.

The commuting rule can be used if all of the following requirements are met:

• The vehicle is provided to an employee for business use and, for bona fide non-compensatory business reasons, the employee is required to commute in the vehicle.  This requirement is met if the vehicle is generally used each workday to carry at least three (3) employees to and from work in an employer-sponsored commuting pool.
• A written policy is established under which the employee is not allowed to use the vehicle for personal purposes other than for commuting or de minimis personal use (such as a stop for a personal errand on the way between a business delivery and the employee’s home).
• The employee does not use the vehicle for personal purposes other than commuting and de minimis personal use.
• The employee who uses the vehicle is not receiving compensation equal to or exceeding $133,900 or is an elected official.

Annual Lease Value (ALV) Method

Under this method, the value of an automobile provided to an employee is determined by using its annual lease value (ALV).  For an automobile provided only part of the year, use either its prorated annual lease value or its daily lease value.

The ALV of a vehicle is determined as follows:

1. Determine the fair market value of the vehicle as of the first day on which it was made available to an employee for personal use.
2. Find the ALV in the table found on Attachment A of this bulletin for the appropriate fair market value of the vehicle as determined in step 1 above.

Employees who use the lease value rule should be reminded of the consistency requirements of the rule:

• Employees must begin using this rule on the first day the vehicle is made available for personal use.  However, the following exceptions apply:
  • If the commuting rule was used when the vehicle was first made available for personal use, this method may be changed to the lease value rule on the first day for which the commuting rule is not used.
  • If the cents-per-mile rule was used when the vehicle was first made available for personal use, this method may be changed to the lease value rule on the first day on which the vehicle no longer qualifies for the cents-per-mile rule.
• Employees must use this rule for all later years in which the vehicle is made available, except that the commuting rule may be used for any year during which use of the vehicle qualifies.
• Employees must continue to use this rule even when a replacement vehicle is provided if the employer’s primary reason for the replacement is to reduce federal taxes.

Employees are responsible for maintaining documentation to support the business use of the vehicle.  The standard for record keeping is “adequate records or sufficient evidence” to support any business use of their vehicle.

Examples of acceptable substantiation are:  account books, diaries, log receipts, bills, trip sheets or expense forms.  Written records made at or near the time the expense was incurred should be maintained to document the time, date, place and purpose of business travel.

Form AC 3173 (Employee Worksheet, Taxable Value of Personal Use of Employer Provided Vehicle) is attached to this bulletin and should be completed and signed by each employee covered by the regulations.  The form should be retained by the agency.

Pickup Trucks and Vans as Qualified Nonpersonal Use Vehicles

Qualified nonpersonal use vehicles, including trucks and vans, are exempt from business use substantiation. 

The following vehicles are unlikely to be used for personal reasons and are exempt from the substantiation requirements:

Buses, ambulances, police and fire vehicles, construction vehicles, cement trucks or forklifts.

IRS has provided additional guidelines for determining when certain specifically modified pickup trucks or vans will be recognized as qualified nonpersonal use vehicles.

Pickup trucks with a loaded gross vehicle weight of 14,000 pounds or less:

• Vehicle should be clearly marked with permanently affixed decals or with special painting or other advertising associated with the employer’s trade, business, or function and is equipped with at least one of the following:
  • Hydraulic lift gate
  • Permanently installed tanks or drums
  • Permanently installed side boards or panels  materially raising the level of the sides of the bed of the pickup truck
  • Other heavy equipment such as an electric generator,  welder, boom or crane used to tow automobile and other vehicles
• The vehicle is clearly marked with permanently affixed decals or with special painting or other advertising associated with the employer’s trade, business, or function, is actually used primarily for transporting a particular type of load other than over the public highway in connection with construction, manufacturing, processing, farming, mining, drilling, timbering, or other similar operation, and has been designed or modified to a significant degree for such use.

Vans with a loaded gross vehicle weight not over 14,000 pounds:

• Vehicle is clearly marked with permanently affixed decals or with special painting or other advertising associated with the employer’s trade, business, or function.
• Vehicle has a seat only for the driver or the driver and one (1) other person.
• Vehicle has either permanent shelving installed that fills most of the cargo area or the cargo area is open.
• Vehicle constantly (during both working and nonworking hours) carries merchandise, material, or equipment used in the employer’s trade, business or function.

Agency Actions

Agencies must enter the taxable value using the earn code FRB on the Time Entry page or through the agency Miscellaneous File.  For information regarding submission of Time Entry transactions, see Payroll Bulletin No. 408.

Terminated or Resigned Employees with Employer-Provided Vehicles:

Agencies must ensure that these employees submit a completed Form AC 3173 to report the value of personal use from November 1, 2006 up to the day the vehicle is returned to the agency.  Agencies must enter the taxable value in PayServ to ensure the appropriate taxes are withheld from the final check due the employee.

W-2 Information

The taxable value of personal use of an employer-provided vehicle is subject to income and Social Security/Medicare taxes and must be reported as income on the W-2.  New York State will not withhold federal income taxes.
However, State, local and Social Security/Medicare taxes must be withheld.

While OSC cannot withhold taxes for Inactive employees, OSC
will include the taxable value on the employee’s W-2.

The amount is not considered salary for the purposes of computing retirement benefits.

Employee's Paycheck/Advice

Fringe Benefit and the amount of the taxable value will appear on the paycheck stub or direct deposit advice and will be included in the YTD Gross.

Attachments

Attachment  A – Annual Lease Value Table
Attachment  B – AC 3173

Questions

Questions regarding this bulletin may be directed to the Payroll Deductions mailbox.