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PAIN AT THE PUMP

IRS Raises Gas Mileage Reimbursement

Small, large businesses will feel a bigger financial pinch


By Jason Millman

jmillman@HartfordBusiness.com

06/30/08

Photo/Diane Weaver Dunne

Gas prices in Connecticut continue to be among the highest in the nation, well over the national average of $4.07, as pictured above at the Mobile station in Windsor.

Small businesses could take another financial hit when Internal Revenue Service gas mileage reimbursement rates increase almost 16 percent this week, some economic analysts have cautioned.

“Many of the smaller business are probably more vulnerable to these types of price increases because the owner’s stability and financial status is very close to the financial status and stability of the business,” said Mark Soycher, human resources counsel for the Connecticut Business & Industry Association.

The increase from 50.5 cents per mile to 58.5 cents for business driving is expected to pose a problem to small businesses, which were not expecting the rate increase in the middle of the year, Soycher said.

“They’re certainly going to face higher costs,” Soycher said. “It becomes a tax deductible business expense, but there’s only so much available there for these kinds of things. Everyone’s caught in a squeeze play.”

 

Compliance Not Required

The last time the IRS raised the rate in the middle of the year was 2005, right after Hurricane Katrina, when it bumped reimbursement for business driving to 48.5 cents per mile from 40.5 cents per mile. The new business rate goes in effect July 1 and will last the rest of the year.

“Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile. We want the reimbursement rate to be fair to taxpayers,” said IRS Commissioner Doug Shulman in a statement.

Many companies make it their policy to stay consistent with the IRS rate, though they are not required to. Though the IRS rate is tax deductible, businesses that follow the rate will be taking a bigger hit up front, Soycher said.

“In a sense, it’s tax deductible. It’s not a straight drop in revenue in having to spend this money, but it is an expense that reduces the profitability of the business,” he said. “It’s not an investment that gives them anything greater in return.”

The midyear increase will provide added pressure for companies that do not go by the IRS rate to boost their own reimbursement rates, Soycher said. Many employees have started doing their homework by calling AAA to calculate how much it costs them to maintain their vehicles each year so they can then appeal to employers for an increased rate, he added.

 

Big Biz, Bigger Hit

Meanwhile, larger companies will also be feeling the effects of the new rate. The Visiting Nurse Services of Connecticut, one of the largest home health care providers in the state with 550 employees, had just completed its budget for the 2009 fiscal year before the IRS announcement. The company policy is to reimburse at the recommended rate.

“We’d been anticipating about a 10 percent increase, so we’re going to have to find another 6 percent somewhere,” said Mark Chudwick, VSN director of communications, who was referring to the 16 percent increase.

About 18 percent of home health care providers in Connecticut reimburse at the full rate, according to Chudwick, who estimated the increase will cost the company about $127,000 in mileage reimbursement costs.

Ginne Rae Clay-Gilmore, director of the Connecticut Small Business Development Center, said her organization will continue to make major strides to cut down on traveling in light of recent rate increases. In years past, while someone from the center would have driven almost anywhere in the state to meet with a person thinking about starting a business, the organization can no longer afford to make house calls.

“People used to call in about starting a business, and we’d say, ‘Sure, we’ll meet with you.’ Someone calls in now, we recommend a workshop,” Clay-Gilmore said.

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