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Federal Heavy Vehicle Use Tax

HVUT Webinar

Thursday August 20, 2009

Participant dial in number: 1-866-939-8416 Participant code: 3571104

Federal Heavy Vehicle Use Tax – HVUT

Form 2290

HVUT

• What is HVUT? – HVUT is a federal excise tax paid

annually by commercial motor carriers on all commercial motor vehicles (CMV) registered for 55,000 pounds and over for both IRP and full base plate registrations. Canadian and Mexican motor carriers that operate in the U.S. are also subject to the tax.

HVUT

• Why is HVUT Important? – HVUT is a significant source of transportation funding. In

2006, the HVUT generated more than $1.4 billion in Federal Highway Trust Fund (HTF) revenue.

– In 2006, HVUT revenue represented approximately 4.2 percent of the total revenue deposited into the Highway Account of the Federal HTF.

– On October 1, 1985 states were required to verify proof of payment prior to registration of trucks subject to HVUT. This enforcement measure saw a growth of HVUT revenue by over $154 million the following year.

HVUT

• Where does HVUT revenue go? – HVUT being a federal excise tax goes into the Federal Highway

trust fund and is returned to the States for various highway program areas in accordance with legislatively established formulas. Each state is guaranteed that at least 90.5 percent of its highway user percentage attributions to the Highway Account of the Highway Trust Fund will be returned to the State. Since contributions by the highway users in each state cannot be directly measured, procedures have been developed to attribute funds to the States.

– The HVUT is applied to trucks of 55,000 pounds and over gross vehicle weight, at $100 plus $22 per 1,000 pounds in excess of 55,000 pounds, with a maximum of $550 per truck. The HVUT non-fuel based fees are attributed to the states in the same proportions as special fuels are attributed to the individual states.

HVUT

• Where does HVUT revenue go? – HVUT revenue being part of the Federal HTF goes to

finance a broad spectrum of transportation programs including:

• Highway infrastructure • Highway improvements • Highway and bridge maintenance activities • Highway law enforcement • Safety programs (driver education and training, vehicle

inspection programs, vehicle size and weight enforcement, etc.) • Congestion relief projects • Administrative cost (for example, research, engineering, etc.) • Local highway, congestion and safety related programs • Etc.

HVUT

• Where does HVUT revenue go? – Investment in our Nation’s highway infrastructure helps:

• Save lives, time and money • Reduce the number and severity of crashes for all kinds of

vehicles • Enhance the ability of the entire community of emergency

responders • Lower fuel and insurance costs • Increase mobility • Ease congestion • Improve the efficient movement of goods • Help with economic development • Strengthen the nation’s economic productivity • Etc.

HVUT

• Annual Revenue Generated by HVUT? – Based on information provided by FHWA the following chart

shows revenue collected and the number of vehicles HVUT was filed on for 2003 - 2008:

Year HVUT $ # of Vehicles 2003 $940,434,000 1,896,403 2004 $944,563,000 1,973,323 2005 $1,089,886,000 2,572, 036 2006 $1,403,550,000 N/A 2007 $1,031,884,000 1,966,270 2008 $1,038,312,000 N/A

HVUT

• What is a state’s responsibility? – Each state is required to obtain proof of

payment at the time of registration for both IRP and intra-state registrations

– Verification is a hardcopy paper process where the motor carrier provides a copy of the validated Form 2290 Schedule One as proof of payment

– There are various approved processes in place throughout the states

HVUT

• What is a state’s responsibility? – Failure to obtain proof of payment of

HVUT can lead to a state losing up to 25 % of their Federal Highway Trust Fund dollars!

HVUT

• IRP Process for HVUT – Process for IRP registrations is a little easier due to

the fact that most states have a single IRP system and process registrations at a central location

– Some have suspension processes in place today – Process is hardcopy process which prohibits true end

to end electronic credentialing as states still must require a copy of the 2290 as proof of payment.

– System easier to interface with outside systems such as the IRP Clearinghouse

HVUT • Intra-State Process for HVUT

– In some cases the process for intra-state registrations is similar or the same as IRP

– Process is a hardcopy process – Many states have separate registration systems for

intra-state registrations with no interface to their IRP system

– In many states intra-state registrations are done at the local level by local officials

– And in some cases states have private agents that handle intra-state registrations at multiple locations using various systems and in some cases manual processes to process intra-state registrations

HVUT

• Recent changes to HVUT program – Changes in 2004 to require the IRS to provide

an electronic filing process – Law requires that carriers with 25 or more

vehicles file electronically – Starting in 2008, the IRS enforced the

requirement for these carriers to file electronically

– Deleted the quarterly payment option – Created a credit for taxpayers on sold or

deleted vehicles

HVUT

• Recent changes to HVUT program – All carriers can file electronically regardless of

number of vehicles – Electronic filers are required to use one of the

IRS approved software developers products to file

– Some larger motor carriers have developed their own interface to file directly with the IRS

HVUT

• New law included requirements for an electronic verification process which has yet to be completed and implemented – As of Spring 2009, the electronic verification

process is not developed, leaving states with the same burden of a paper verification process

HVUT

• Much effort has gone on over the years to work with the IRS and FHWA to come up with a better process, but as of today, the process remains the same……

HVUT

• HVUT Compliance and State Data – Based on IRP data and some limited intra-state data,

the numbers don’t add up and there is reason to believe that compliance with HVUT is lacking.

– Reasons for this vary: • Carriers not filing appropriately • Lack of enforcement • Lack of verification at some intra-state agencies • Fraud

HVUT

• HVUT Compliance and State Data – Based on IRP data and some limited intra-state data,

the numbers don’t add up and there is reason to believe that compliance with HVUT is lacking.

– The Task Force is currently attempting to obtain data, both IRP and intra-state, to determine the vehicle population for taxable commercial vehicles.

HVUT

• HVUT Compliance and State Data – Based on IRP data and some limited intra-state data,

the numbers don’t add up and there is reason to believe that compliance with HVUT is lacking.

• Failure for adequate compliance and data accessibility mean that revenue is likely less than it should be which translates to States not have as much funding from the Highway Trust funds as they should!!

• Possibly as much as $250 to $400 million annually short of what it should be!!

HVUT • Spring 2009 the IRP Board of Directors set up a Task

Force to look at the HVUT process and come up with recommendations &/or possible federal legislation to deal with the HVUT and improve the process for both the states and the motor carriers…..

• Task Force Members: • Jaki Berry, Colorado - Chair • Cathy Beedle, Nebraska • Deb Hillmer, South Dakota • Garry Hinkley, Maine • Boyd Walden, Florida • Bob Pitcher, ATA • Richard Harris, Penske • Tim Adams, IRP Staff Liaison

HVUT

• There are a few options that have been discussed so far and at this point the Task Force would like to provide an overview of the options discussed and hopefully gain some insight and input from the state representatives…..

HVUT

• The following slides will briefly outline the options and provide some details on each…..

• None of these are carved in stone at this point, so please provide us with your thoughts…..

HVUT

• Option # 1 – States Collect HVUT – For this option, please note that when we talk about States

collecting we are talking about both IRP and intra-state registrations, knowing that states have different processes in most cases.

– States Collect HVUT at the time of registration…. – Motor carriers would pay the HVUT along with their IRP

and Intra-state registrations…. – The states would collect the taxes and transmit to IRS

via the IRP Clearinghouse on a monthly basis…. – States would maintain all records electronically and not

be required to maintain any hardcopy paper records….

HVUT

• Option # 1- States Collect HVUT – Necessary data would be transmitted via the IRP

Clearinghouse to IRS on a monthly basis…. – An online verification process would be developed in

the IRP Clearinghouse data warehouse for verification if a carrier has already paid the tax through another state….

HVUT

• Option # 1- States Collect HVUT – The federal legislation would contain language to

compensate the states for collecting the HVUT. – The rate would be based on a percentage of the

existing tax or added to ensure the states are adequately compensated….

• Should the compensation for the states be: – A flat fee per vehicle; – A flat fee per registrant; or – A percentage of the tax…..

HVUT

• Option # 1- States Collect HVUT – General feeling of the Task Force is that the

compensation for states should be a percentage of the tax per vehicle…..

– Current thinking is to recommend that the rate be set at 2 percent of the tax rate per vehicle…..

HVUT

• Option # 1- States Collect HVUT – Funding for state system modifications will be

included in the proposed federal legislation • This would include funding for both IRP and Intra-state

processes

– Funding for modifications of the IRP Clearinghouse to serve as the hub for HVUT funds and data

HVUT • Option # 1 – PROS • Would improve compliance and increase collections as states would not issue

registration without collection of tax or verification through IRP Clearinghouse that the tax was paid.

• Would reduce tax filing burden on industry as they would not have to file the additional return through the IRS as the return would be included with their annual IRP filing.

• Would provide customer service as the registrants would not have to file or go to different places to complete their registration processes.

• Would help states with electronic registration processes to have true end to end electronic processes.

• Would make it harder to evade the tax while making the process more efficient and effective overall.

• Would change administrative burden on state registration agencies, with most seeing a positive impact.

• Proposal would provide compensation for states administrative processes. • IRP Clearinghouse would be a vital piece of the puzzle and provide upload link that

already exist for states, at least for IRP.

HVUT • Option # 1 – CONS • Any Federal law change would need to reflect a change in the tax period to

coincide with state registration periods, particularly those with staggered registration periods. This may present cash flow issues for motor carriers in the first couple of years of implementation.

• Some states may require state law changes to allow them to participate and collect the HVUT.

• Will have to work through transitional issues. • If the administration fee comes from the existing tax, the amount of funds

coming back from the FHWA to the states may be less. **If the current theory is correct and revenue collections would go up, those state agencies should still see an increase and not a decrease due to overall increase in the collections. And in many cases the funds collected go into the state highway funds anyway, so they would not actually see a decrease.

• There would be interfaces required for not only collecting the tax and data, but also for intra-state registration which do not currently exist. **Should include cost estimates in whatever language is proposed.

HVUT

• Option # 1 – Questions? • Would states have legislative issues with collecting a Federal tax?

• General consensus is that there would not be if it is a federal mandate (funded mandate).

• Would state have legislative issues with collecting the administrative fee? • General consensus is no.

• What should the fee to cover state administrative cost be? Is 2 percent of the tax per vehicle reasonable and adequate for states?

• Is there need or a transition period for states coming onboard and collecting the HVUT? Maybe a 3 – 5 year period?

• Should states be allowed to transition in on a ready basis, in other words when they are ready and completed testing, they can join?

HVUT

• Option # 1 – Questions? – What level of funding is going to be required to provide adequate

funding to revamp this program? • Upfront developmental cost for states?

– Should this be a grant program administered by IRP? What should the amount per state be?

• IRP Clearinghouse modifications? – What would the application or tax return process be?

• Would the registrant have to file the Form 2290 or could the process of the return be incorporated into the IRP application?

• What about intra-state, is there a way to incorporate into the intra-application process?

HVUT

• Option # 2 – Electronic Verification – Develop federal legislation that would require the IRS to

develop and implement the electronic verification process by a certain date.

• Not a new concept as this was a requirement of the federal law changes back in 2004, but the IRS has yet to develop and implement the system.

• With any test systems the IRS has developed there have been software requirements that would be expensive for the states to interface with the system.

• There are also still disclosure concerns. Many agencies, particularly non-revenue agencies, most likely would have trouble gaining access to the IRS HVUT data structure.

HVUT

• Option # 2 – Electronic Verification – Develop federal legislation that would require the IRS to

develop and implement the electronic verification process by a certain date.

• Federal legislation would contain language requiring the data structure be easily accessed by the state registration agencies.

• There should be no cost to the states to access the system. • All state registration agencies must have access to the HVUT data

structure. • Data structure must contain all vehicles that have paid HVUT. • Data structure would be updated real time to ensure the registration

agencies have access to the most current data.

HVUT

• Option # 2 – Electronic Verification – If the IRS fails to meet that date, the states would be

relieved of the requirement to verify HVUT until such time as the IRS has the system developed and implemented.

• What should the timeframe for the IRS to have the data available? • How to be sure the states revenue from HVUT is protected if this

option is chosen and the IRS does not comply?

HVUT

• Option # 2 – Electronic Verification – Include language in the legislation to provide funding for

states to make necessary programming changes to interface with the IRS HVUT system.

• Funding levels would need to be determined based on information obtained from the jurisdictions.

• Funding would include funds to create interface for both IRP and intra-state registration systems.

• Grants could be administered through IRP, Inc. similar to how the IRP Clearinghouse grants were administered.

HVUT

• Option # 2 – Electronic Verification – PROS

– Likely less of an administrative burden on states. – Should improve compliance. – Would take away the hardcopy paper burden.

HVUT

• Option # 2 – Electronic Verification – CONS

– Burden and cost to build interfaces if unfunded. – Timeliness of updates. – What happens if there is no electronic record. – History shows that even with law changes requiring this

functionality, it still isn’t ready today!!

HVUT

• Option # 3 – States Provide Registration Data to the IRS – States would provide registration data to the IRS and IRS

would verify that HVUT has been filed and paid on the vehicles. By submitting the data to the IRS the states would be relieved of obtaining the proof of payment at the time of registration.

• States would submit data electronically to the IRS either annually or on a periodic (monthly, quarterly??) basis in a defined format.

• The IRS would compare the state vehicle data with HVUT tax data to determine if the 2290 had been filed and tax paid.

HVUT

• Option # 3 – States Provide Registration Data to the IRS

• The IRS could follow up with any carriers found in the states data

but no match is found in the HVUT data base. • States would assist the IRS in collection of the unpaid HVUT by

setting up a suspension system to suspend registrations (both IRP and intra-state) for failure to pay HVUT.

• Information on unpaid HVUT would be supplied to the states electronically.

HVUT

• Option # 3 – States Provide Registration Data to the IRS –PROS

• Relieves the states from collecting the hardcopy proof of payment • Eliminates obstacle of hard copy proof which will allow true end to

end electronic credentialing • Reduces burden on motor carriers to have to file the hard copy

documents with the state registration agencies • Reduces hardcopy documents the states must maintain on file • Eliminates fraudulent documents being presented as proof of

payment

HVUT

• Option # 3 – States Provide Registration Data to the IRS –CONS

• More labor intensive program for the IRS • Extra labor and cost for states to implement and run a

suspension program • Legislative changes needed to suspend for failure to pay

HVUT for IRP and intra-state registrations

HVUT

• Option # 3 – States Provide Registration Data to the IRS –CONS

• Possible loss of revenue for states as taking away the proof of payment requirement may mean some don’t pay

• Priority of the HVUT within the IRS • Hurdles with creation of file to submit data to the IRS

especially with intra-state registrations (IRP data could come from IRP Clearinghouse)

• Funding to pay for creation of data file to submit HVUT data to the IRS

HVUT

• Wrap Up – State registration agencies are willing to do their part as

they understand the revenue does come back to their State, but need assistance from the IRS &/or FHWA to make the process more efficient and effective.

– Additionally, the process needs to be more customer friendly providing a convenient and efficient process for the motor carriers to file and prove payment of their taxes.

HVUT

• Wrap Up – Likely will require federal legislation to move this

in a timely manner. – Need input from each State! – Need to evaluate all the options! – Need to move this and get a more efficient and

effective process in place sooner than later!!

HVUT

• Questionnaire – Survey??? – Is HVUT verification a burden for your jurisdiction? – Is your intra-state program handled by the same agency as your

IRP? – If not, how who handles your intra-state registration?

– ____ Other State Agency – ____ Local State Offices – ____ County Office (elected official) – ____ Contract Agents – ____ Other

__________________________________________________________________________________________________________________________________________________________________

– Are you IRP and intra-state system the same system? – If not, do interfaces exist between the systems?

HVUT

• Questionnaire – Survey??? – Does your state offer electronic credentialing for IRP? – Does your state offer electronic credentialing for intra-state

registrations? – How do you handle HVUT for these?

__________________________________________________________________________________________________________________________________________________________________________________________________

– Would your state support legislation to collect the HVUT at the time of registration?

– Would your state require state legislation to facilitate this process? – Do you have data you can share with us on the number of IRP and

intra-state registrations subject to HVUT?

HVUT

• Wrap Up

–Thank you!! –Questions? –Comments!