State of California

M E M O R A N D U M


To:       PERSONNEL MANAGEMENT LIAISONS                        Date:  September 7, 1992
                                                               Reference Code:  92-72
          THIS MEMORANDUM SHOULD BE DISTRIBUTED TO:

                Accounting Officers and Personnel Officers

From:     Department of Personnel Administration
          Office of the Director

Subject:  Taxation of State-Owned Carpools and Vanpools


          The State Controller's Office (SCO) recently conducted a review of the potential
          employee tax liability arising from commuting in State vehicles made available
          for carpool and vanpool programs.  The SCO has determined that the State
          employer may be out of compliance with the reporting portion of the Internal
          Revenue Service (IRS) regulations that would otherwise allow the exclusion of
          these carpools and vanpools from taxation.

          Sections l.6l-21 of the IRS Regulations generally require that the value of
          employer-provided vehicles must be included in the gross income of each employee
          who commutes in the vehicle.  However, Section l.6l(c)(2)(B) allows the employer
          to exclude from gross income any amount reimbursed by the employee.  DPA Rule
          599.80l (attached) requires carpool/vanpool participants to fully reimburse the
          State for the operation of any vehicle used in a commute program.  Since the
          State employer requires full reimbursement for the operation and use of such
          vehicles, there is no value associated with their use and they are therefore
          excluded from taxation under the IRS Regulations.

          However, in order to fully comply with the IRS Regulations, the State employer
          is required to keep detailed records of the costs associated with the use of
          commute vehicles.  These records must show that the program is fully
          reimbursable.  These requirements are also set forth in DPA Rule 599.80l.  DPA
          Rule 599.80l(g)(l) also requires that an annual accounting will be made to the
          Department of Personnel Administration (DPA) by each State agency participating
          in this program on a fiscal year basis.  Such reports shall include the number
          of vehicles, number of participating employees, cost of operation, total fees
          received, accidents, savings in parking charges, and any other data requested by
          DPA.  The reports are to be forwarded to DPA by September l of each year.

          In order to satisfy the requirements of the IRS regulations and DPA Rules, State
          departments are being asked to immediately submit reports for Fiscal Year
          l990/9l and l99l/92 and by September l for each year thereafter.  If your agency
          does not provide commute vehicles, please indicate that on the form and return
          it.  These reports will made available for the State Controller's Office for
          their audit.  Attached is a copy of a report form for use by State agencies to
          report the required information.  If this data is not reported, affected
          employees could be assessed a valuation for the use of such vehicles.  Reports
          should be forwarded to Sydney Perry, Policy Development Office, Department of
          Personnel Administration, l5l5 S Street, North Building, Suite 400, Sacramento,
          958l4-7243.  Questions regarding the taxation and reporting requirements may be
          directed to Sydney Perry at (9l6) 445-9244, ATSS 485-9244.



          Wendell M. Coon, Chief
          Policy Development Office

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