Tax & Accounting Resources for the Transportation Industry
Over the past year, the transportation industry has encountered tremendous change. There have been numerous things impacting how the industry functions. This tax and accounting resource guide supplies insights and reference material for your transportation business and reviews some of the recent changes in the industry.
SEE BELOW FOR TAX & ACCOUNTING RESOURCES
THE NEW NORMAL – COMMON QUESTIONS WE ARE HEARING FROM OUR TRANSPORTATION CLIENTS
Our transportation team has been getting many questions about how to navigate a business through this pandemic. We discuss a handful of questions and answers in this blog post.
Lease Accounting Changes
SALES TAX & NEXUS ISSUES
Transportation Industry Benchmarking
Tax law changes
Lease Accounting Changes
The lease standard has been delayed twice in the last year and is currently scheduled to be implemented in years beginning after December 15, 2021. The new lease accounting rules will have a significant impact on the financial statements of transportation companies leasing real property, equipment, vehicles, and other fixed assets. Transportation companies need to know the ramifications this will have on their total financial statements and bank or bonding covenants.
This standard will increase a company’s current liabilities, and if banks opt not to remove this new liability from covenant calculations or change the benchmark, a historically easy ratio to obtain may become an impossible hurdle. The lease standard will also require estimates of how many extensions of a lease will be exercised and, based on the wording in the lease, expenses like operating costs and real estate taxes may be included in the newly recorded liability.
Transportation companies should review their lease agreements and current footnotes to determine the impact of this change before implementation. The pandemic has led many companies to negotiate changes in their lease terms or delayed rent payments until an extended lease end term. These lease modifications may cause additional lease liabilities and changes in rent expense. Free rent, whether COVID-related or stated in the lease, will be amortized over the course of the entire lease, again changing the annual rent expense for many companies.
SALES TAX & NEXUS ISSUES
The transport of people and products often has varying considerations when it comes to state sales tax implications. Each law has various factors to be considered to determine nexus. Sales tax is assessed on some items, but not others. This blog post covers some of the more typical items in general commerce involving the transportation industry.
Driver Shortages are continuing
The transportation industry has been hit hard by a drought of qualified employees. COVID has grown the overall unemployment rates; however, the transportation industry continues to struggle to find drivers and skilled workers. COVID has made this even more difficult as determining the future market is more complex and has many variables. Paycheck Protection Plan loans have helped companies keep employees, but even a second round of funding is not a long-term solution to retaining employees.
HOW DOES YOUR TRANSPORTATION COMPANY STACK UP?
Note: Interested in learning benchmarks and key performance indicators for your specific industry? Reach out to a Smith Schafer professional. We work with over 110 Minnesota transportation entities and have access to industry reports.
TAX LAW CHANGES OFFER OPPORTUNITIES
The CARES act was the start of both federal and state changes as a response to the pandemic. Historically, “tax planning” is related to income tax; however, with the changing landscape caused by COVID, payroll tax savings and credits offer various opportunities for companies on top of SBA loans, like the Paycheck Protection Plan loans. The stream of tax changes in 2020 is not expected to slow down in 2021. It is essential to stay up to date with the latest from Congress, the SBA, and state legislation.
On June 22 we presented at the Minnesota School Bus Operators Association summer conference about recent tax and accounting changes. Download the presentation here.
CONTACT OUR TRANSPORTATION INDUSTRY EXPERTS
Industry knowledge and close collaboration are instrumental in providing our transportation clients with the insight and awareness to make the best business decisions and seize growth opportunities. Smith Schafer is a recognized leader in providing accounting and consulting services to the transportation industry since 1971. We have a team of experts, focused on working with the transportation industry, and committed to helping our clients succeed. If you have questions about improving your business model, implementing an accounting practice, or tax planning strategies to improve operations, Smith Schafer can help.
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