Tax Services
Patricia Smith
Senior Editor
Trucking "is not a dollar business, it's a penny business. Margins are very thin," says Al Hingst, executive vice president of contractor programs for U.S. Xpress. Surviving on those slim margins is a challenge for all trucking operations, but especially difficult for new owner-operators.
Many, he notes, are former company drivers buying their first trucks through carrier lease/purchase programs. They have little or no business management experience so important concepts like cash flow and break-even are not familiar to them.
To help new owner-operators over that steep learning curve, many carriers like U.S. Xpress are lining up tax and accounting services such as those offered by American Truck Business Services, Kittredge, Colo.
The ATBS program was developed by Todd Amen, a former fleet owner who recalls the problems his own contractors had finding reliable, knowledgeable tax services. "Most of them went to the store-front tax services or local accountants who weren't familiar with special tax provisions for trucking," he says.
Moreover, without trucking knowledge or experience, many of those tax services were unable to give owner-operators sorely needed financial and management advice.
As Amen notes, federal and state tax returns and estimated taxes are an important part of ATBS's services, but they only represent 15% to 20% of what they do. "The other 80% is monthly profit and loss statements, business management assistance and taking away the paperwork burdens," he says.
The typical owner-operator ends up with 40 to 80 pieces of paper a month - phone bills, scale tickets, fuel receipts, settlement statements, etc. Even if they use an accounting or tax service, many still have to do most of the sorting and tallying themselves. "It's a waste of time," says Amen. "They don't get paid to do paperwork, they get paid to drive miles."
ATBS does the sorting for its owner-operator clients. With the owner-operator's permission, it will also arrange to receive earnings and expense information directly from carriers.
"If an owner-operator is leased to a carrier, anywhere from 70% to 90% of his expenses go through the carrier," he explains. Fuel and insurance are often purchased through carrier programs. Truck payments go through the carrier if the owner-operator is buying equipment through a carrier program. Thus electronic data interchanges with partner carriers can significantly reduce manual labor for the owner-operator and for ATBS.
Clients get monthly profit and loss statements which, in addition to the usual revenue and expenses, show loaded and empty miles, pay per mile, per-mile expenses, and net income before taxes and cash advances. Additionally, a benchmarking service allows owner-operators to see how their performance in key areas such as fuel mileage compares with the performance of their peers.
"You can give a driver a P&L statement and 80% are going to be overwhelmed just looking at the numbers," notes Amen. "Our benchmarking process makes it real simple. If an owner-operator is doing below average on a certain item, he gets a sad face next to that item. If he's doing better than average, he gets a happy face. If he gets a sad face he needs to do better in that category. If he doesn't understand how to do better, he calls his business consultant and asks."
Through its web site, attrucktax.com, ATBS offers a variety of resources including tax checklists and a Q&A section. Additionally, owner-operators are assigned business consultants they can call as often as they want to review financial statements, discuss tax issues, or ask for business advice.
"We set it up like a truck line," says Amen. "Drivers like one fleet manager they can talk to about their issues, so with us they have one business consultant. If the consultant doesn't know the answer to a question, he or she will find it."
As Hingst points out, a good business service looks not only at business expenses but will also help owner-operators set up a budget, including personal obligations such as house payments and credit card debt. "I'm sold on the break-even point," he says. "The contractor needs to know how many miles he has to run each month to at least break even."
Fees for business services depend on services, volume and efficiencies the carrier can offer the company providing the service. For instance, the ATBS "retail" rate - i.e. the rate they charge individual owner-operators - is $999 a year. They charge less when they can reduce their own overhead costs through electronic data interchange and fee deductions from settlement checks.
In order to comply with federal truth in leasing rules, tax and accounting programs can only be offered as an option to owner-operators. Any related charges deducted from settlement checks must be clearly specified in the lease contract. In most cases, owner-operators pick up the fees themselves, but some carriers pay all or part of the costs. To encourage participation, U.S. Xpress offers the service to new contractors free for the first few months.
The biggest benefit to carriers: lower turnover. "When we partner with a carrier our whole mission is to make their owner-operators successful," says Amen. "We have proven time and time again with our partner carriers that we can reduce owner-operator turnover by at least 50%."
Hingst doesn't have numbers but is convinced contractor turnover is lower. "We don't have the failures," he says.
Another benefit: benchmarking. ATBS has an Independent Contractor Benchmarking Council made up of some 30 partner carriers, most with more than 500 owner-operators. Amen says they meet with them frequently on an individual basis and, once a quarter, produce a benchmarking report of owner-operator revenue and cost items. (The reports are available to other carriers for $500 a quarter.)
The information helps carriers determine how their programs stack up against the owner-operator programs of others and where they need to make changes. "Their pay may be below average or maybe their insurance costs are a little high," notes Amen. One carrier recently adjusted its lease/purchase program based on the benchmarking data. "They weren't really that far out of whack," he says, "but they're a carrier that wants to be the best so they made the changes to be more competitive."
Because of the costs involved in setting up the systems, ATBS initially targeted very large carriers for its partner programs. But as they have grown and developed their infrastructure, they've also become more flexible to service smaller clients. "Someone with 20 trucks isn't going to have the technology to do the data interchange. It may cost a little more but we can work with paper copies of settlement statements," Amen says.
The company is also expanding its tax services to include company drivers. Like owner-operators, company drivers often have their tax returns done by people who aren't familiar with special trucking provisions, or many don't itemize at all. ATBS generally charges $150-$200 to prepare a tax return for company drivers.
Last year the average refund was $1,175.
