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Automobile Expenses Policy

The Internal Revenue Code requires the value of the personal use of an employer provided vehicle that does not qualify as a non-taxable fringe benefit to be included in the employee's taxable wages as shown on his/her Form W-2.

G.S. 143-341 requires every individual who uses a State-owned passenger motor vehicle, pickup truck, or van to drive between his official work station and his home to reimburse the State for these trips at a rate to be computed by the Department of Administration. This rate should approximate the benefit derived from the use of the vehicle as prescribed by the Internal Revenue Code and shall be made by payroll deduction. The outline below sets forth the IRS valuation rules for the personal use of an employer provided vehicle. In addition to the reimbursement required of the personal use of State owned vehicles, the Internal Revenue Code requires employees and State officials receiving reimbursements in excess of the allowable Federal cents per-mile-rate for the business use of their personal vehicle to include this amount in the recipients W-2. For taxable years beginning after January 1, 1995 the allowable Federal cents-per-mile rate is 30 cents per mile.

The State's reimbursement policy for vehicle expenses is set forth in the Budget Manual.

Automobile Expenses as a Nontaxable Fringe Benefit
There are four general situations in which the use of employer provided vehicle will result in a non-taxable fringe benefit to the recipient/employee:

1. The vehicle is used 100% for business reasons.
2. The value of the personal use is so small that accounting for it is unreasonable or administratively impractical.
3. The employer maintains a written policy against the employee's personal use of the car and other specified conditions are met.
4. The employer maintains a written policy that restricts the use of the car to commuting and other specified conditions are met. Under this alternative, an amount determined by reference to the Special Valuation Rules must be included in the employee's taxable wages.

If the employee's use of the car does not fall within one of the above situations, then the value of his personal use must be computed by his employer and included in taxable wages as shown on his/her Form W-2 or the employee should reimburse the employer for his/her personal use.

General Valuation Rules
If you do not use the vehicle special valuation rules, discussed later, you must determine the value of an employer-provided vehicle under the general valuation rules. In general, the value is what the cost would be to a person leasing from a third party under the same or comparable terms in the same geographic area.

Also, unless the employee can prove that the same or comparable vehicle could have been leased on a cents-per-mile basis, the value of the availability of the vehicle cannot be determined by using the cents-per-mile rate, but must be determined based on a comparable lease.

Special Valuation Rules
There are three special valuation rules that relate to automobile usage:

1. Automobile lease valuation rule;
2. Vehicle cents-per-mile valuation rule; and
3. Commuting valuation rule.

If you and your employee properly use one of the special rules above, the employee must include in income the value you determine under the rule minus any reimbursement he or she has paid to you.

Notification of employee.
If you elect to use a special valuation rule, you must notify your employee of the election by January 31 of the calendar year for which the election will apply or 30 days after you first provide the benefit, whichever is later.

Automobile Lease Valuation Rule
Generally, you figure the annual lease value of an automobile as follows:

1. Determine the FMV of the automobile as of the first date the automobile is available for personal use.
2. Using the IRS Annual Lease Value Table, read down column 1 until you come to the dollar range within which the FMV of the automobile falls. Then read across to column 2 to find the corresponding annual lease value.

Safe Harbor Valuation Rule
The Safe-harbor value may be used as the FMV of the automobile. For an automobile that is owned by the State the safe-harbor value is cost. For automobiles leased by the State the safe-harbor value is the retail value of the automobile listed in a nationally recognized publication that regularly reports new or used automobile retail values.

The annual lease values in the table above include the FMV of maintenance and insurance for the automobile. The annual lease values do not include the FMV of the fuel the State provides, regardless of whether you provide fuel in kind or reimburse its cost. You should value fuel you actually provided at cost or at 5.5 cents per mile for all miles driven by the employee.

The lease values calculated under these rules are based on a four-year lease term. The annual lease values will generally stay the same for the period that begins with the first date you use the rule for the automobile and ends on December 31 of the 4th full calendar year following that date. If the vehicle is not available for a full year then the lease value should be prorated based on the portion of the year it was available.

Vehicle Cents-Per-Mile Valuation Rule
If you provide an employee with a vehicle that you reasonably expect will be regularly used in your trade or business throughout the calendar year or that satisfies the Mileage rule requirements, the value of the benefit provided is the standard mileage rate multiplied by the total miles the employee drives the vehicle for personal purposes. For 1995 this rate is 30 cents per mile for all miles.

The standard mileage rate must be applied to personal miles independent of business miles. For example, if your employee drives 20,000 personal miles and 35,000 business miles in 1995, the value of the personal use of the vehicle is $6,000 (20,000 x .30).

Mileage Rule
A vehicle meets the mileage rule in a calendar year if:

1.  It is actually driven at least 10,000 miles in that year; and
2. It is used during the year primarily by employees.

The vehicle is considered to be used primarily by employees if employees use it consistently for commuting. For example, if only one employee uses a vehicle during the year and that employee drives the vehicle at least 10,000 miles in that calendar year, the vehicle meets the mileage rule even if all miles driven by the employee are personal. If you do not own or lease the vehicle during part of the year, the 10,000 mile requirement is reduced proportionately to reflect the periods when you did own or lease the vehicle.

Fair market values included in the cents-per-mile rule.
The cents-per-mile rate includes the fair market value of maintenance and insurance for the vehicle. For miles driven in the United States the cents-per-mile rate includes the FMV of fuel you provide. If you do not provide fuel you may reduce the rate by no more than 5.5 cents per mile.

When can you use the cents-per-mile rule.
You can only use the cents-per-mile valuation rule to value the miles driven for personal purposes. To figure how much to include in an employee's income, multiply the number of personal miles driven by the employee by the appropriate cents-per-mile rate.

When you cannot use the cents-per-mile rule.
You may not determine the value of the use of an automobile under the vehicle cents-per-mile valuation rule if the FMV of the automobile on the first date on which you make the automobile available to your employees for personal use, exceeds the sum of the maximum recovery deductions allowable under section 280F(a)(2) of the Code for the first 5 tax years in the recovery period for an automobile first placed in service during a calendar year after 1986. The maximum recovery deductions referred to under section 280F(a)(2) is $12,060.

Commuting Valuation Rule
Under this special rule, the value of the commuting use of an employer-provided vehicle is $1.50 per one-way commute (that is, from home to work or from work to home) for each employee who commutes in the vehicle.

You may use this special rule to figure commuting value if you and your employees meet all of the following criteria:

1. You own or lease the vehicle and provide it to one or more employees for use in your trade or business;
2. For bona fide noncompensatory business reasons, you require the employee to commute to and/or from work in the vehicle;
3. You have established a written policy under which the employee may not 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);
4. Except for de minimis personal use, the employee does not use the vehicle for any personal purpose other than commuting; and
5. The employee required to use the vehicle for commuting is not your control employee (defined later).

Control Employees. A control employee of a government employer is any:

1. Elected Official;
2. Federal employee who is appointed by the President and confirmed by the Senate. In the case of commissioned officers of the U.S. Armed Forces, an officer is any individual with the rank of brigadier general or above or the rank of rear admiral or above; or
3. State or local executive officer comparable to the individuals described in items (1) and (2) above.

For employees of the agencies/universities of the State entity a control employee means:

1. Elected official;
2. State agency/department official appointed by the Governor; or
3. An employee with a annual compensation above $75,000 per year, indexed for inflation.

State Vehicle Usage by Non-employee
Non-employees who use State vehicles for official State business are subject to the same rules and regulations as State employees. The use of State vehicles is not reportable on 1099 Returns.