Heavy Vehicle Use Tax
Audit Practice Aid
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Program Description
The heavy vehicle use tax or HVUT is a fee assessed annually on vehicles operating on public highways at registered gross weights equal to or exceeding 55,000 pounds.
The HVUT is a significant source of transportation funding in the U.S. In 2013, the HVUT generated more than $1 billion in Federal Highway Trust Fund (HTF) revenue. Since the vast majority of all funds contributed by states to the Federal HTF are returned through highway fund apportionments, there is a direct incentive for state agencies to take necessary measures to enhance HVUT compliance.
On October 1, 1985, states were required to verify proof of payment as a condition of registering heavy vehicles subject to the HVUT. In the year following introduction of this enforcement measure, HVUT revenues grew by an additional $154 million, representing an increase of nearly 41 percent.
HVUT Collection and Administration
The code of federal regulations establishes a framework for HVUT enforcement in 23 CFR 669 and assigns responsibilities to multiple federal and state agencies.
· The Internal Revenue Service (IRS) is responsible for HVUT collections and taxpayer audits.
· States are required to obtain proof of payment when registering heavy trucks subject to the tax. Furthermore, 23 CFR 669.11 requires the Governor of each state to certify HVUT compliance prior to January 1 of each year. In so doing, the Governor or his or her designee must submit a letter with text prescribed in 23 CFR 669.9 and contained within Form FHWA-1563 certifying that the state is obtaining proof of payment as a condition of registering heavy trucks subject to the HVUT.
· Federal Highway Administration (FHWA) is required under 23 U.S.C. 669.21 to periodically review the states’ procedures for complying with HVUT requirements. This review must include the inspection of registration records and other supporting documentation. Part 699 of the Federal-aid Policy Guide requires FHWA to conduct HVUT compliance reviews at least once every three years for each state in the nation. Division offices are responsible for conducting these reviews.
If a state fails one of the periodic compliance reviews, the Secretary of Transportation has the authority to withhold up to 8 percent of the state’s federal-aid highway funds [23 U.S.C. 104(b)(1)]. A finding of non-compliance could, therefore, cost the state millions in lost highway funding. Thus, it is imperative that states take measures to ensure HVUT compliance.
Procedures for Paying the HVUT
IRS Form 2290 is used when paying the HVUT. The Internal Revenue Service (IRS) is responsible for collecting the tax, so all payments are made to the IRS. The tax period begins on July 1 and ends on June 30. For new vehicles, IRS Form 2290 must be filed by the last day of the month following the month of first use. Annual renewals are due by August 31 each year.
Once the carrier has paid the tax, proof of payment must be submitted with their registration renewal to relevant state authorities. Proof of payment may be provided in the form of a manually stamped or electronically watermarked Schedule 1 from IRS Form 2290. An acceptable substitute is a completed IRS Form 2290 and a copy of the front and back of the canceled check used to make the payment.
In the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), Congress took action to enhance HVUT enforcement through several provisions:
o Mandating that HVUT taxpayers with 25 or more vehicles file taxes electronically
o Repealing the option to pay the HVUT on a quarterly basis
o Funding the development of an electronic system for the filing process
Statutes and Regulations
1. 23 U.S.C. 141(c) – Enforcement of Requirements
2. 23 CFR 629 – Enforcement of Heavy Vehicle Use Tax
3. 26 U.S.C. § 4481 – Imposition of Tax
4. 26 CFR §41.6001-2 – Excise Tax on Use of Certain Highway Motor Vehicles, Proof of Payment for State Registration Purposes
Scope and Objectives
Audit Scope
This audit focuses on compliance with heavy vehicle use tax requirements as a condition of registration. Agencies that administer heavy vehicle registration vary by state and may include the State Motor Vehicle Division, Motor Carrier Unit, or Department of Motor Vehicles. In some states, this organization is part of the State DOT. In others, vehicle registrations are administered by external office(s), and the State DOT performs a tax filing and/or compliance function.
This audit program does not apply to suspension registration systems which allow vehicles to be registered without proof of payment, but automatically suspend registration if proof of payment is not received within a required time frame.
This review covers the 12-month period ending September 30, the same period covered by the compliance certification specified in 23 CFR §669.7.
Audit Objectives
The purpose of this audit is to provide assurance for the state’s annual certification to the Federal Highway Administration, mandated by 23 CFR 669, that the state is obtaining evidence of payment of the heavy vehicle use tax as a condition of registration for all vehicles subject to such tax. The audit objectives are:
A. To gain an understanding of how the state administers commercial vehicle registration and HVUT enforcement.
B. To determine whether agencies’ policies and procedures require proof of HVUT payment as a condition of registration for all vehicles subject to HVUT.
C. To verify if a copy of Schedule 1 of the IRS Form 2290 for each heavy vehicle registered is on file at the agency.
D. To determine whether Schedule 1 of IRS Form 2290 is valid proof of payment for the vehicle being registered.
E. To verify that proof of payment of HVUT was obtained before vehicles subject to the tax were registered.
F. To make recommendations for improvements as necessary.
Audit Program
Objective A:
To gain an understanding of how the state administers commercial vehicle registration and HVUT enforcement.
Step 1:
Obtain information concerning entities that perform commercial vehicle registration and HVUT compliance functions in the state and document organization and processes.
Step 2:
Conduct a walk-through of procedures for obtaining proof of HVUT payment.
Objective B:
To determine whether agency policies and procedures require evidence of HVUT payment as a condition of registration for all vehicles subject to HVUT.
Step 1:
If multiple local agencies register vehicles subject to the tax, select agencies to be reviewed.
a. Select agencies on a rotational basis, such that each is reviewed periodically.
b. An agency that does not demonstrate compliance in an audit should be reviewed annually until full compliance is demonstrated.
Step 2:
Send a notification letter to appropriate officials.
a. If an on-site review is planned, schedule a date for the visit.
b. If a desk review is planned, request documents for review, including
1) Schedule 1 of Form 2290 for each sampled vehicle
2) Tag receipt for each sampled vehicle
3) Written procedure for verifying proof of payment of HVUT; if procedures have already been obtained, request any updates since previous review.
Step 3:
Review policies and procedures and determine whether appropriate steps are included to ensure that vehicles are not registered without proof of payment of the heavy vehicle use tax.
Objective C:
To verify if a copy of Schedule 1 of the IRS Form 2290 for each heavy vehicle registered is on file at the agency.
Step 1:
Select a sample of vehicle registrations for testing
a. Obtain a report of active vehicles over 55,000 pounds from the appropriate office.
b. For each governmental unit under review, select a sample of vehicles from the list for testing. Sample size may be determined based on risk assessment and/or number of heavy vehicles.
c. Prepare a test schedule with the tag number, VIN number, and owner name from the heavy vehicle report.
Step 2:
For each sample vehicle, obtain a copy of the tag receipt and proof of HVUT payment or suspension. Review documents at the appropriate office or request they be sent via email, fax or mail.
a. Proof of payment or suspension generally consists of a receipted Schedule 1 of IRS Form 2290.
b. If the registering agency accepts HVUT filings, obtain proof of payment in accordance with the agreement with the IRS.
c. If the state allows registration without proof of payment for newly purchased vehicles, obtain a copy of a bill of sale (or other document evidencing transfer) indicating that the vehicle was purchased by the owner either as a new or used vehicle within 60 days of application for registration (26 CFR §41.6001-2(b) (1).
1) Inspect the bill of sale and note the date on the test schedule. Verify that the bill of sale date is within 60 days of the tag issue date.
2) If the bill of sale date is not within 60 days preceding the tag issue date, note the exception on the test schedule. Make a copy of the bill of sale and tag receipt as support documents.
d. If proof of payment is not available for a registered vehicle subject to HVUT, note an exception on the test schedule.
e. If a sample vehicle has been registered in another location, sold, disposed of, or removed from use, note the canceled registration on the test schedule and select an alternate sample.
Objective D:
To determine whether Schedule 1 of IRS Form 2290 is valid proof of tax payment or suspension for the vehicle being registered.
Step 1:
Verify that the registered VIN number is present on Schedule 1 of Form 2290.
a. The vehicle identification number of the vehicle being registered must appear on the Schedule 1 in order for the Schedule 1 to be a valid proof of payment for such vehicle (26 CFR §41.6001-2(c)).
b. Note an exception on the test schedule if the VIN number does not appear on Schedule 1 of Form 2290. Make a copy of any invalid Schedule 1 as support documentation.
Step 2:
Verify that Schedule 1 is for the current period. The IRS Heavy Vehicle Use Tax period runs from July 1 to June 30 each year. According to 26 CFR 41.6001-2(b)(1), any proof of payment presented to a state must relate to tax paid (or suspended) for the taxable period which includes the date that the state receives the application for registration.
For vehicles registered during July, Aug, or September, proof of payment for the immediately preceding taxable period may be used to verify payment of the tax (26 CFR 41.6001-2(b) (4)). Although the new tax period begins July 1, owners required to pay the Heavy Vehicle Use tax have until October 1 before the new tax period 2290 schedules must be presented. Accordingly, during July, August, and September, the 2290 schedule may be either the new one or one from last year's tax period. Therefore,
October 1 - June 30: Proof must be from the current tax year.
July 1 - September 30: Proof can be from last tax year or the current year just started.
If not, note an exception on the test schedule and make a copy of Schedule 1.
Step 3:
Verify adequate proof of payment or suspension of the HVUT tax has been obtained.
a. Verify that one of the following is present as evidence of payment:
1) IRS “RECEIVED” stamp and date on Schedule 1 of IRS Form 2290. A receipted Schedule 1 also serves as proof of suspension of the tax under 26 CFR§41.4483-3.
2) IRS “E-file” watermark and received date on Schedule 1 of IRS Form 2290
3) Schedule 1 and copy of front and back of a canceled check or money order
b. Note the IRS received date or check/money order date on the test schedule. Note an exception on the test schedule if no IRS stamp is present on Schedule 1 and no canceled check or money order is available. Make a copy of any invalid Schedule 1 as a support document.
Objective E:
To verify that proof of payment of HVUT was obtained before vehicles subject to the tax were registered.
Step 1:
For each sample vehicle, note the tag issue or registration date on the test schedule.
Step 2:
Verify that the HVUT payment date is before the tag issue date.
a. Compare the date of HVUT payment to the date the tag was issued.
b. Note an exception on the test schedule if HVUT payment was made after the registration date. Make copies of Schedule 1 and the tag receipt.
Objective F:
To make recommendations for improvements as necessary.
Step 1:
Document whether written procedures are adequate to ensure the agency is not registering vehicles that have not been accounted for under IRS procedures.
Step 2:
Document any instances of non-compliance that were found. Copy support documentation (Schedule 1 of Form 2290, tag receipt) of all exceptions. Compute pass/fail percentage for the agency.
Step 3:
Discuss and/or provide a written report of audit findings, percentage rating, and need for improvements, if any, with appropriate officials.
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