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Volume 14 | Issue 1 | 2014
truck times
The Financial Side of the Trucking Industry
IN THIS ISSUE
2
Transportation Companies Benefit from New Capitalization Regs
3
Tax Implications of Running Miles between the U.S. and Canada
4
Green Fleets: Trucking Companies Explore Alternative Fuel
Equipment Upgrades
6
Client Spotlight: Paschall Truck Lines Forms 100% ESOP
8
Here and There in the Trucking Industry
Katz, Sapper & Miller
Certified Public Accountants
truck times
Transportation
Companies
Benefit from New
Capitalization Regs
By Randy Hooper, CPA
Director
[email protected]
FIGURE 1
Five Major
Topics of
Capitalization
Regulations
Deciding what should be capitalized
or expensed can be a painful process,
particularly for companies that are fixed
asset intensive. The temporary regulations
that previously instructed taxpayers
concerning capitalization (Regs 1.263(a)
and 1.162(a)) were ambiguous, failing to
set clear guidance on a variety of issues
affecting capitalization. On Sept. 13,
2013, the Internal Revenue Service (IRS)
attempted to firm up these guidelines
by releasing the final rules concerning
when taxpayers must capitalize and when
they may deduct expenditures related
to acquiring, producing, maintaining, or
repairing tangible property. While the new
regulations are not required to be followed
until Jan. 1, 2014, taxpayers may choose
to follow these regulations for tax years
beginning Jan. 1, 2012. In some cases,
taxpayers may be required to file a change
in accounting method to comply with the
new rules.
Capital expenditures
(Reg. 1.263(a)-1)
Amounts paid for acquisition
or production of tangible
property (Reg. 1.263(a)-2)
Amounts paid for
improvements to tangible
property (Reg. 1.263(a)-3)
Materials and supplies
(Reg 1.162-3)
2
Repairs and
maintenance
(Reg. 1.162-4)
The final regulations cover five major
topics. See Figure 1.
• Capital expenditures
(Reg. 1.263(a)-1)
• Amounts paid for acquisition or
production of tangible property
(Reg. 1.263(a)-2)
• Amounts paid for improvements to
tangible property (Reg. 1.263(a)-3)
• Repairs and maintenance
(Reg. 1.162-4)
• Materials and supplies (Reg 1.162-3)
While all of the topics addressed in the
new regulations affect the transportation
industry, there is one point in particular
that could substantially increase
deductions for truckers. When deciding
what can be properly expensed, taxpayers
with an applicable financial statement
may now rely on a new de minimis safe
harbor amount of $5,000. Applicable
financial statements are: independent
certified audited financial statements,
financials required to be filed with the SEC
or financials required to be provided to a
federal or state government agency. The
de minimis amount for a company without
an applicable financial statement is $500.
Entities wishing to take advantage of the
higher safe harbor amount must file an
election with their tax return and have
a written internal policy stating their
capitalization standards.
Continued on page 7.
See “Capitalization”
Volume 14 | Issue 1 | 2014
THE FINANCIAL SIDE OF THE TRUCKING INDUSTRY
Tax Implications
of Running Miles
between the U.S. and
Canada
Nathan Potter, CPA
Staff Accountant
[email protected]
The U.S. Department of Transportation
recently released data showing that
trade between the U.S. and Canada is
on the rise. Trucking is at the forefront
of U.S.-Canada trade as trucks were
carrying nearly 54 percent of freight
across international borders as reported
in October 2013. As more companies
evaluate taking on international routes,
it is important to understand the tax
implications of running miles across
international borders.
The income tax treaty between the
United States and Canada addresses the
tax implications for trucking companies.
These treaties established a tax exemption
for U.S. and Canadian transportation
companies engaged in international
hauling. While an exemption exists in
Katz, Sapper & Miller
regards to paying federal income tax on
international trade, there are still filing
requirements that must be satisfied.
For U.S. corporations running miles into
Canada, U.S. trucking companies are
required to file a Canadian income tax
return, Form T2, and complete Schedule
91, Information Concerning Claims for
Treaty-Based Exemptions, in order to
claim the treaty exemption. The T2 serves
as a federal, provincial and territorial
income tax return.
Canadian corporations running U.S. miles
are required to file Form 1120-F,
Continued on page 7.
See “Implications”
Implications
3
truck times
Green Fleets: Trucking
Companies Explore
Alternative Fuel
Equipment Upgrades
By Matt Gard, CPA
Manager
[email protected]
Alternative fueling is one of the hottest
topics in the trucking industry today.
Evidence could be seen at the sold out
Natural Gas in Trucking Summit, hosted
by the American Trucking Associations
in the fall of 2012. And many state
associations continued to demonstrate its
growing popularity by including natural
gas as a topic at their annual conventions
throughout 2013. With diesel hovering
around $4 per gallon, private and for-hire
fleets are searching for all possible ways to
improve fuel efficiency while also reducing
truck emissions.
option many companies are choosing. The
price of natural gas has increased since
reaching a record low in April 2012 and is
currently 30 percent cheaper per gallon
than diesel. However, the lower cost of fuel
should not be the only deciding factor as
these trucks can cost up to $50,000 more
than a diesel truck. This is a substantial
increase considering new individual
tractors already cost more than $110,000.
Many companies are analyzing the impact
the increased investment for alternative
fuel tractors will have on their cost. For
example, see Figure 2.
Natural gas, in either liquid (LNG) or
compressed (CNG) form, is a popular
FIGURE 2
Analzying
the Impact
of Increased
Costs
4
$40,000
Increased cost per one alternative fuel vehicle:
$4.00
Price per gallon – natural gas: ($4 x 0.7 or 30% less per gallon than diesel)
$2.80
Average MPG (both diesel & natural gas unit): 6 mpg
Price per gallon – diesel: Volume 14 | Issue 1 | 2014
THE FINANCIAL SIDE OF THE TRUCKING INDUSTRY
Based on these assumptions it would take
one unit approximately 200,000 total
miles to earn back the initial investment.
However, this assumption does not factor
in fuel surcharge programs implemented
by most for-hire carriers to recoup the
cost of diesel above a specified base price
per gallon. There is currently no federal
regulation covering fuel surcharges.
A base price per gallon, near $1.25, is
common industry practice.
Some companies are already moving
forward and are adding natural gas units
to their fleets. One private carrier is in
the process of converting their entire
fleet to CNG by 2015. Based on their
analysis, the company is expecting to
recoup their initial investment in only 2½
years. Another for-hire fleet worked with
the U.S. Department of Energy to obtain
government funding to convert several
test units from diesel to CNG.
The assumptions above do not take
into consideration any differences in
maintenance costs or availability. Truck
stops are recognizing the increased
demand within the industry and are
beginning to make alternative fuels
available at more stations around the
country. Maintenance costs, in general,
may be more of a wild card since this is
relatively new technology.
There are many factors to consider and
companies should carefully analyze
equipment options before determining the
best solution. 
Step 1
Determine the amount of fuel consumption, in gallons,
needed to earn back the increased investment.
In this equation, it would take approximately 33,000 gallons.
$4.00 – 2.80 = $1.20
$40,000 / $1.20 = 33,000
lower price per gallon
gallons consumed
Step 2
Determine the total number of miles needed.
33,000 (gallons) x 6 (mpg) = 200,000 total miles traveled
to recoup initial
investment
Katz, Sapper & Miller
5
truck times
Client Spotlight:
Paschall Truck Lines
Forms 100% ESOP
In October 2013, Randall A. Waller,
president and CEO of Paschall Truck
Lines, Inc. (PTL), announced that PTL
had sold 100 percent of its stock to its
employees through an Employee Stock
Ownership Plan (ESOP). Mr. Waller made
the announcement to his employees at
the Curris Center Ballroom on the Murray
State University campus in Murray, KY. Mr.
Waller purchased the company from L.W.
Paschall approximately 40 years ago.
Today, PTL, also headquartered in Murray,
operates approximately 1,130 tractors and
has approximately 1,400 employees.
“This [ESOP transaction] has solved
several problems,” Mr. Waller said, noting
that the move helps satisfy an exit plan.
Additionally, the ESOP transaction
should ensure that the headquarters will
remain in Murray. “In talking with other
potential buyers, one of the main things
they wanted to do was do away with our
corporate headquarters,” Mr. Waller said.
“That was not an option.”
Katz, Sapper & Miller (KSM) played a
significant role in facilitating the ESOP
transaction by coordinating the services
of the trustee, attorneys and valuation
experts. The tax planning provided
by KSM helped ensure that Mr. Waller,
PTL and the newly-formed ESOP could
structure the transaction to the benefit of
all stakeholders.
our responses to the many professionals
involved and helped keep everything on
schedule. And Andy Belser (a partner in
KSM’s Transportation Services Group)
contributed an important tax strategy
that helped maximize proceeds to the
seller. Without KSM’s involvement I don’t
think the outcome of this deal would
have been nearly as positive for Mr.
Waller, the employee owners and the
company itself.”
“Without KSM’s
involvement I don’t think
the outcome of this deal
would have been nearly
as positive for Mr. Waller,
the employee owners and
the company itself.”
— Charles Wilson,
PTL VP of Finance
KSM congratulates PTL on its ESOP
transaction and wishes the company
continued success in 2014 and the years
to come. 
“We really feel that this whole
transaction has been a team effort, and
that Andy Manchir (a director in KSM’s
Valuation and ESOP Services Groups)
was vital to the process,” said Charles
Wilson, vice president of finance for PTL.
“Andy helped us coordinate and prioritize
6
Volume 14 | Issue 1 | 2014
THE FINANCIAL SIDE OF THE TRUCKING INDUSTRY
Capitalization
(Continued from page 2)
For example, if a transportation company
with an applicable financial statement
decided to invest $150,000 in GPS units
at $1,500 per unit to place on vehicles
already in service, they would typically
capitalize these units and depreciate
them over five years. However, under the
new capitalization rules, if the taxpayer is
provided an invoice that breaks out each
unit on a separate line, and each line is
under $5,000, the entire amount may be
expensed as an ordinary deduction in the
current year. This example would apply
beyond GPS units as well. Auxiliary power
units, yard equipment, used trailers or
any other purchase under $5,000 may be
expensed, as long as it meets the stated
criteria.
(Continued from page 3)
U.S. Income Tax Return of a Foreign
Corporation, and claim a treaty exemption
by completing Form 8833, Treaty-Based
Return Position Disclosure. While all
income shall be exempt for U.S. federal
purposes, these companies could still
be subject to U.S. state tax liabilities if
“nexus” is generated. The tax treaties do
not exempt Canadian companies from
taxation at the U.S. state level. Canadian
companies need to look at each state
they are traveling through to determine if
nexus has been created.
As companies continue hauling
across borders or consider taking on
international routes, it is important to
understand the related tax implications
and filing requirements. 
It is important to note that the new de
minimis amounts do not change the
IRS’ position on expensing tires. Even if
a taxpayer is required to have a $500
capitalization policy, tires may still be
expensed under Revenue Procedure
2002-27. This Revenue Procedure states
that taxpayers must capitalize the cost
of original tires on owned equipment,
but may deduct the cost of replacement
tires on owned equipment when they are
installed.
The tax advantages of increasing one’s
capitalization threshold may be obvious,
but some companies are choosing not
to adopt the new safe harbor amount
or are setting their capitalization policy
lower than $5,000 because of the effect
on their financial statements. Expensing
these purchases could dramatically shift a
company’s financials and could negatively
affect loan covenant calculations.
Therefore, taxpayers are advised to
consult with their tax advisors prior to
changing capitalization policy. 
Katz, Sapper & Miller
7
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Our People: Your Success
Here and There in the Trucking Industry
Katz, Sapper & Miller (KSM) held a Trucking Owners Business
Roundtable in February. The roundtable was co-sponsored by KSM, KSM
Transport Advisors, and the law firm of Scopelitis, Garvin, Light Hanson
& Feary. The roundtable featured Thom Albrecht, managing director of
BB&T Capital Markets, and Bryan Merolla, senior analyst at the Cleveland
Research Company, who discussed their views of the economy and
trends in the transportation industry. Additionally, Jason Miller and Don
Boezeman of KSM’s Transportation Services Group provided accounting
and tax updates; while Nathaniel Saylor and Brandon Wiseman of
Scopelitis provided a transportation law update.
KSM Transport Advisors (KSMTA) hosted a Freight Network Roundtable
in February. The roundtable provided an opportunity for KSMTA’s freight
network clients to learn about and discuss freight network engineering
concepts, issues and best practices.
Mark Flinchum presented on the topic of ESOP accounting at the Indiana
Chapter of The ESOP Association’s Annual Conference in Carmel, IN in
February. He also co-presented with Andy Manchir of KSM’s Valuation
and ESOP Services Groups on the topic of “ESOPs as a Business
Succession Planning Tool” at a joint presentation with the law firm of Fox
Rothschild in New York, NY in February.
KSM’s Committment to the Trucking Industry:
• Alabama Trucking Association
• American Trucking Associations
• Illinois Trucking Association
• Indiana Motor Truck Association
• Intermodal Association of Chicago
• Iowa Motor Truck Association
• Kentucky Motor Transport Association
• Michigan Trucking Association
• Mid-West Truckers Association
• Missouri Trucking Association
• National Tank Truck Carriers
• New York State Motor Truck Association
• Ohio Trucking Association
• Pennsylvania Motor Truck Association
• Tennessee Trucking Association
• Truckload Carriers Association
For more information about Katz, Sapper & Miller, please visit ksmcpa.com.
For more information about KSM Transport Advisors, please visit
ksmta.com.
Jason Miller presented on the topic of “Profitability Best Practices” at the
Indiana Motor Truck Association’s Future Leaders of Indiana conference in
Indianapolis, IN in October 2013.
The Katz, Sapper & Miller Network
KSM Charitable Foundation Services
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Truck Times Editorial Committee:
Mark Flinchum, Tim Almack, Andy Belser, Donna Blackmon,
Jennifer Moore
KSM Consulting, LLC
ksmconsulting.com
Truck Times is a bi-annual publication distributed to our clients and friends. Any tax advice or opinion
herein contained is not intended to be used, and cannot be used, by anyone to avoid the imposition of
any federal tax penalties. For more information on the articles featured in this edition of Truck Times,
please contact the authors at 317.580.2000.
KSM Transport Advisors, LLC
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