Who Should Own the Veterinary Practice Vehicle?

There are business, legal and tax implications surrounding who owns a veterinary practice vehicle.
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In the equine veterinary industry, there are many “road warriors.” The membership of the AAEP consistently includes 38-40% solo practitioners, most of whom are ambulatory. The results of the 2016 AVMA AAEP Equine Economic Survey revealed that 36.5% of respondents reported they were ambulatory practitioners, and an additional 35.4% reported they were ambulatory practitioners with a haul-in facility. With mobile practice comes decisions about vehicles—what should I drive and who should own it?

The choice of a practice vehicle is a personal one. Equine veterinarians in ambulatory practice often essentially use their vehicles as their offices, carrying a laptop and a printer as well as all the needed equipment and supplies for the day’s scheduled and unscheduled (emergency) work.

Having adequate room to work efficiently and comfortably is necessary for a smooth workflow. Having room for an assistant or a truck dog can significantly improve well-being and decrease stress. Comfortable, climate-controlled seats that can be heated or cooled and adjusted while driving can prevent physical fatigue from long miles. A rear hatch that lifts and provides shade or cover from precipitation at the back of an SUV can be much appreciated.

In many areas, four-wheel or all-wheel drive is essential, and where pastures or poorly maintained roads must be traversed, adequate ground clearance is a must. If a pickup with a Bowie or Portavet unit is chosen, running boards allow much easier access to the contents of the “wings” for shorter people.

Having Choices

Having input or complete control over the choice of vehicle from which they practice can be important for some veterinarians’ job satisfaction.

Veterinarians face the question of who should own the practice vehicle—the practice or the individual?

In group practices, owners who provide vehicles sometimes are frustrated that associates fail to treat them with respect. They tell of engine failures due to lack of attention to routine maintenance such as oil changes, diminished value due to excessive wear of the interior and carelessness resulting in body damage from vehicular accidents. Associates who provide their own vehicles are challenged by the need to provide a mileage log and sometimes complain of delayed payments for mileage reimbursement. There are certainly positives and negatives for both positions.

When a practice wants to have a consistent brand experience for clients, having vehicles that are similar in color and style can contribute to that experience. Some practices have a painted or wrapped logo on each vehicle. Even the inserts in a practice’s vehicles can be consistent, offering an opportunity to standardize stocking and organization if a veterinary team shares trucks.

With more practices moving to flexible, four-day schedules and/or employing part-time associates, vehicle sharing can be a cost-saving move. When one vehicle is unavailable due to repairs or maintenance, having a fleet allows veterinarians to use another without disruption of their calls.

Organizing physical counts of inventory and controlled drugs is facilitated with practice-owned vehicles, since they are typically parked at the practice.

Associates with strong vehicle and insert preferences often love the idea of providing their own practice vehicles and being reimbursed for their mileage. They might choose to drive a smaller SUV with excellent gas mileage to earn a little extra compensation from IRS mileage rate reimbursement. By ordering a custom insert, they can arrange their equipment exactly as they wish in a way that suits their workflows.

Because so many practitioners work long hours and have little personal time, having another vehicle for non-work hours might feel unnecessary, and with the reimbursement for work use contributing significantly to the costs for purchasing the work vehicle, this can reduce the associate’s overall living costs.

Downsides

There are some potential negatives to consider, however. Along with the difficulties described above, insurance on business vehicles is expensive, as are registration, maintenance and repairs. Practices must protect their businesses from liability by ensuring that their associates carry adequate insurance for the commercial use of the practice’s vehicles. 

Vehicles purchased new rapidly lose value, particularly if they are not used with care. Mileage rapidly mounts up—47% of respondents in the AVMA AAEP survey reported driving 25,001-50,000 miles each year for their work. If a practice downsizes or changes vehicle type, such as moving from trucks to SUVs, it might struggle to sell a used veterinary insert. Recent changes to the tax code limit the deductibility for purchase of business vehicles of less than 6,000 pounds gross vehicle weight. However, SUVs, trucks and vans are eligible for 100% bonus depreciation in IRC Section 179 if they are above 6,000 pounds. This is true for both new and used vehicles. Heavy duty trucks and large SUVs fit this criteria, so practices can still benefit from their purchase. But most associates (who don’t own their businesses) do not have this advantage because they will not be depreciating their vehicles.

These new tax laws limit the deductibility of smaller, more fuel-efficient vehicles, which might cause practices to needlessly spend more on gasoline if they decide to purchase heavier vehicles in order to utilize bonus depreciation.

Practices that are interested in maintaining a strong brand identity might wish to have control over the vehicles that are associated with their brands. For instance, if the practice wishes to serve a high-end population of athletes, an associate with an older, somewhat dilapidated or damaged vehicle might not be consistent with their desired image of prosperity and elitism. Purchasing a fleet of color-coordinated or identical vehicles may be more desirable in this case.

Associates who use their personal vehicles for work must be adequately insured for business use. This insurance is considerably more expensive than that for personal use. If a practice-owned truck is involved in an accident, the driver’s personal insurance rates and liability are minimized. In addition, associates do not have tax advantages in the purchase of a vehicle and must absorb all the costs of vehicle repair and maintenance without being able to deduct this from income as an expense.

If an associate’s vehicle is unusable for any reason, he or she might have to rent a replacement at his or her own expense. Although the reimbursement for mileage driven for work is not taxable, the costs of providing a work truck per mile might exceed the IRS mileage rate provided. Typically, this occurs when the vehicle chosen by the associate is large, has a high-level trim package and/or has poor gas mileage.

The 2017 Tax Cuts and Jobs Act disallowed employees’ ability to deduct unreimbursed business expenses for the tax years 2018 through 2025. In addition, all reimbursed business expenses are now taxable to employees, including payments for mileage, unless these expenses are fully documented to the employer. If not “accountable,” payments for driving expenses are now considered employee benefits. They are subject to withholding for federal income taxes, FICA taxes and unemployment taxes, and they must be reported on W-2 forms.

However, any payments to employees for vehicle expenses are still deductible to employers as business expenses.

If mileage will be reimbursed, accurate records must be kept and submitted to the employer. The IRS watches entertainment, travel and vehicle expenses very closely to ensure they are truly for business and not for personal use. The required records must include the date and place of the expense, the amount and a short description of the business purpose. They are expected to be created contemporaneously—at the time the expense is incurred.

Solo Practitioners

When a solo practitioner is considering how to manage ownership of the practice vehicle, there are several considerations. The practice can lease the vehicle from the owner, allowing an expense for the business. Because loan payments are made from profits and are not deductible, but lease payments are, this decreases the taxable proceeds from the business.

However, the lease payments are considered income to the owner, so the benefit of this scenario will depend on the business structure of the practice and the personal financial situation of the owner. Your accountant can advise you. The business then typically pays all associated maintenance expenses, repairs, registration and insurance on the vehicle and expenses these.

Alternatively, the business can simply pay mileage to the owner at the IRS rate, which is adjusted and announced annually. In 2019 this rate is $0.58 per mile. Because these payments can be considered an employee benefit, they will be taxable unless the contemporaneous mileage log is kept and submitted.

This could be a method for reducing the tax burden of the veterinarian, but as with associates, the choice of vehicle size and trim level might result in higher costs than are covered by the IRS mileage rate. A modest SUV with good gas mileage will typically be adequately covered by the proscribed reimbursement.

Take-Home Message

It is possible to do a mathematical calculation to determine the best method for your situation, as outlined by Jorge Colon, DVM, MBA, at the 2018 AAEP Annual Convention.

This determination utilizes information such as the number of miles driven, the size and fuel efficiency of the vehicle, the cost of insurance and an estimate of the tax impact of the various scenarios to determine the most beneficial action.

The interpretation of the details of the 2017 Tax Cuts and Jobs Act have complicated this decision, so your accountant will be the best source for accurate, up-to-date information. 

Editor's note: Make sure you check with your accountant on any tax implications of practice vehicle ownership.

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