Heavy Vehicle Use Tax Evasion
In spite of the best efforts of federal and state compliance officers, there are ongoing investigations that suggest HVUT evasion continues to be a problem. There are a number of HVUT evasion methods that have recently been detected in IRS audits and FHWA compliance reviews, including:
- Registering a vehicle at a weight lower than its actual gross taxable weight
- Registering as an exempt vehicle and using the vehicle for private or commercial purposes
- Falsely claiming annual use of less than 5,000 miles for commercial vehicles and 7,500 for vehicles used in agricultural operations
- Continuous re–titling of vehicles
- Bribing local and private agents checking for proof of payment when registering vehicles
- Failure to remit tax
- Falsifying or forging IRS Form 2290 or IRS stamp
To combat these methods, the IRS, FHWA, state and local agents must work collaboratively to identify and address HVUT evasion. A joint border inspection program conducted in Montana demonstrated the importance of interagency collaboration and in so doing, discovered that HVUT evasion by international carriers could be a problem. The investigation represented a cooperative effort between the State of Montana, the IRS, United States Customs, the Montana and Idaho National Guard, the United States Department of Transportation (US DOT) and Alberta Treasury.
Inspections of fuel loads, cargos, vehicle safety, driver logs, fuel use, licensing of vehicles and registration of vehicles were conducted at numerous Ports of Entry, including the Ports of Sweetgrass, Roosville, Del Bonita and Whitlash. Under the project, 1,188 commercial vehicles were inspected. Of those vehicles inspected, 512 (43 percent) were not in compliance with the Federal HVUT, 4 commercial vehicles (0.3 percent) were operating with dyed fuel in their supply tanks, and 26 (2.2 percent) were not in full compliance with IFTA and IRP regulations. During the operation, 36 fuel tankers were checked and 22 (61 percent) were guilty of dyed fuel violations, including improper invoicing or the mislabeling of the fuel. The border project yielded $1.4 million in state and federal assessments, averaging $86,609 per day.7
Failure to Pay HVUT Is Costly
Penalties for HVUT non–compliance are costly. The penalty for failing to file IRS Form 2290 by August 30th is equal to 4.5 percent of total tax due, assessed on a monthly basis up to five months. Late filers not making an HVUT payment also face an additional monthly penalty equal to 0.5 percent of total tax due. Additional interest charges of 0.54 percent per month accrue as well.
Based on these rates, an HVUT liability that was originally $550 will climb to over $700 by the end of the five–month period of delinquency. In addition to these federal penalties, states suspend the registrations of vehicles for which proof of HVUT payment has not been provided.
HVUT Evasion Increases Penalties
HVUT evasion penalties can be even more significant, resulting in fines and incarceration, as illustrated in one recent HVUT evasion case. In November 2001, an owner of a small trucking company was found guilty of HVUT evasion. The owner of the trucking company told the court he evaded the HVUT by periodically re–titling his heavy vehicles in Illinois. Specifically, he changed the names of ownership from himself to his company, and back again.
By continually changing the ownership name, for 11 years, he was able to avoid providing proof that he had paid the HVUT in order to register his trucks. The owner of the trucking company was sentenced to serve four months in prison and an additional four months of electronically monitored home confinement. He was also ordered to pay a $2,000 fine.
7Balducci P., M. Weimar, S. Whitmore, E. Fathelrahman, L. Scovell, and D. Johnson. Determining the Current Rates of Motor Fuel Tax Evasion for the State of Montana, Report prepared for the Montana Department of Transportation, Helena, Montana, November 2006.