Boyer & Ritter, CPAs

PAYROLL WITHHOLDING RATES AND LIMITS

The chart below can be used as a guide for 2002/2003 payroll withholding rates and limits.

2003

2002

MINIMUM WAGE

$5.15

SOCIAL SECURITY

Taxable Wage Base

FICA Limit

Medicare Limit

Employee Withholding 7.65%

FICA Portion - 6.20% Rate

Medicare Portion - 1.45% Rate

Employer Liability/per employee 7.65%

FICA Portion - 6.20%

Medicare Portion - 1.45% Rate

Self Employment Tax Rate

$87,000

No Limit

$5,394.00

No Limit

$5,394.00

No Limit

15.30%

$84,900

No Limit

$5,263.80

No Limit

$5,263.80

No Limit

15.30%

MAXIMUM EARNINGS - SOCIAL SECURITY RECIPIENTS

Recipients Under Age 65*

Recipients Attaining Age 65

during the year**

Recipients Age 65 and up

*For each $2 earned above this amount, $1 benefit is lost

**For each $3 earned above this amount, $1 benefit is lost

$11,520.00

***$30,720

No Limit

***Limit applies only to earnings for months prior to reaching age 65.

$11,280.00

***$30,000

No Limit

FUTA

Taxable Wage Base

Gross Tax Rate 6.2%

Minimum FUTA Credit (5.4%)

Net FUTA Rate

$7,000.00

.8%

$7,000.00

.8%

FEDERAL INCOME TAX WITHHOLDING FROM SUPPLEMENTAL WAGES[1]

Method 1 - Flat Rate

Method 2

27.0%

Add the supplemental wages to the regular wages for the most recent payroll period; compute the income tax withholding as if the total were a single payment; subtract the tax already withheld from regular wages; withhold the remaining tax from supplemental wages. Use method 2 if no withholding was made from the employee’s regular wages.

27.0%

Same

STANDARD MILEAGE RATE

Rate when using the simplified method

to reimburse employees for business

miles driven.

.36

.365

PA PERSONAL INCOME TAX WITHHOLDING RATE

2.8%

PA UNEMPLOYMENT COMPENSATION

Taxable Wage Base For Employer

Contribution

Employee Contribution Rate

$8,000.00

.02%

$8,000.00

None

Backup Withholding:

Payments that are not subject to normal income tax withholding, such as payments to independent contractors, interest, dividends, and royalties, are subject to withholding at a rate of 30% for 2002 and 2003 if the payee has failed to furnish his correct taxpayer identification number. These nonpayroll income tax backup withholdings must be reported on Form 945, Annual Return of Withheld Federal Income Tax. The rules for Form 945 nonpayroll deposits have been revised. Under the new rules you will either be a monthly or semiweekly schedule depositor. Your deposit schedule is based on your lookback period. The lookback period is the second calendar year preceding the current calendar year. You are a monthly schedule depositor if you reported $50,000 or less of withholding on Form 945 for the lookback period. You are a semiweekly schedule depositor if you reported more than $50,000 of withholding on Form 945 for the lookback period. There are two exceptions: The $1,000 rule and the $100,000 next-day deposit rule. If you accumulate a total Form 945 tax liability of less than $1,000 for the year no deposits are required and the liability may be paid with Form 945. If $100,000 or more is accumulated on any day during a deposit period, it must be deposited by the next banking day, whether you are a monthly or semiweekly schedule depositor.

New Employees:

Complete Immigration and Naturalization Service’s Form I-9, Employment Eligibility Verification Form. Maintain completed forms as part of personnel files. The Commonwealth of Pennsylvania requires all employers to report information on newly-hired employees. The information must be submitted within 20 days of hiring the employee. New hire Form DUR-1575 has been created for this reporting.

COMPLIANCE WITH MINIMUM WAGE AND OVERTIME REQUIREMENTS

Back pay, penalty and interest for dealers who have not properly complied with the federal wage and hour laws and regulations can result from an audit situation. The following are some of the troublesome areas. Specific circumstances of individual employees should be reviewed with dealership legal advisors.

General Rule: Unless a specific exemption exists, an employee must be paid at least the minimum wage ($5.15 per hour) and overtime at 150% of normal rate for hours over 40 in a week.

Commission Sales Persons:

1. Must be paid minimum wage for all hours worked. Short settlement periods (weekly) can result in no commissions due for a period, result - pay due for the hours worked will be less than the minimum wage requirement. Suggestion - use a monthly settlement period with interim draws to cover minimum wage requirements to avoid this problem.

2. Should be required to keep time records.

Be aware that “gray area” employees such as, service writers, service advisors and leasing salespersons, could be subject to minimum wage and overtime requirements.

Salaried Employees:

1. There is no exemption from minimum wage or overtime provisions simply because an employee is paid on a salary basis.

2. General office and finance office employees are potential problems. To be exempt, they must be either executives or bona fide administrative employees. Strict tests are set forth in the law for both of these exemptions. If employees do not meet these tests, they must be paid no less than minimum wage and overtime at a rate equal to 150% of their normal rate for all hours worked in excess of 40 hours per week.

Mechanics and Parts Persons: - Generally exempt from overtime pay requirements.

1. Mechanics - Individuals primarily performing mechanical work. Typically, this includes service mechanics, reconditioning mechanics and body shop mechanics. The following are among those activities not considered mechanical: painting, cleaning, polishing, tire changing and lubrication.

2. Parts Persons - Individuals whose primary duties include ordering, stocking, pulling and selling of parts. Parts delivery people do not qualify for this exemption.

Dealers may wish to consult NADA’s Management Guide, “Federal Wage-Hour Law and Equal Pay Act”.

FRINGE BENEFIT MATRIX

The chart below can be used as a guide for understanding federal and state status of common fringe benefits.

It provides a reference for use in preparing employee W-2 Forms.

EMPLOYMENT TAX PROVISIONS

FEDERAL TAXABLE

FIT

W/H

FICA

W/H

SUBJECT

TO FUTA

W/H

LOCAL

W/H

Auto - Personal Use

YES

OPTIONAL

YES

[2]

YES

Bonuses

YES

Christmas Gifts (Other than non-cash gifts of nominal value)

YES

Club Dues

YES

Commissions

YES

[3]

YES

Disability Insurance Premiums

Sick or Disability Payments

[4]

YES

[5]

⁴

[6]

⁴

Qualified Cafeteria Plans

[7]

YES

Health Insurance Premiums (including dental & vision) paid by employer

Non qualified Deferred Compensation

YES

[8]

YES

Group Term Life In Excess of $50,000

YES

[9]

Employer Paid Premium on Individual Life Insurance Policies

YES

401K & SEP (Employee Elective Deferral)

YES

Exceptions For S Corp. Shareholder

Health Insurance

Cafeteria Plans

Disability Insurance

YES

NOT

YES

PERMITTED

YES

PARTICIPATE[10]

PENSION PLANS

The following chart reflects the 2003 pension deferral limitations announced by the IRS,

compared with the 2002 limits.

MAXIMUM DOLLAR LIMITS

2003

2002

401(K) Elective Deferrals – employee contribution limit

$ 12,000

$ 11,000

Defined Contributions Plans – total annual participant contributions (includes employer contributions and employee deferrals)

40,000

Annual Compensation Limit – the annual compensation limit that can be taken into account for computing plan contributions and benefits

200,000

Highly Compensated Limit – the annual compensation limit when determining highly compensated employees

90,000

Key Employee Compensation Limit – the annual compensation limit an officer can earn before being considered a key employee (note: there are also other tests for determining key employees)

130,000

SEP Coverage Minimum Compensation – the annual compensation that must be earned to be eligible to participate in a SEP plan

450

SIMPLE Retirement Accounts – annual contribution limit

8,000

7,000

Defined Benefit Plans – maximum annual benefit payable to a participant under a defined benefit plan

160,000

Catch-up Contributions – Under the Economic Growth and Tax Relief Reconciliation Act of 2001, beginning in plan years after 2001, a plan may allow individuals who have attained age 50 by year end to make catch-up contributions. The otherwise applicable dollar limit on elective deferrals under a 401(k) plan, 403(b) annuity, SEP or SIMPLE or deferrals under 457 plan is increased. Catch-up contributions are not subject to any other contribution limits and are not taken into account in applying other contribution limits. In addition, they aren’t subject to applicable nondiscrimination rules. However, they must be available to all over age 50 participants on an equal basis. An employer is permitted to make matching contributions with respect to catch-up contributions. Any such matching contributions are subject to the normally applicable rules. The allowable catch-up contribution applicable to 401(k), 403(b), SEP and 457 plans is $1,000 for 2002 and $2,000 for 2003. This amount is increased by $1,000 each year until it reaches $5,000 in 2006. For SIMPLE IRA and SIMPLE 401(k) plans the amount is $500 for 2002, $1,000 for 2003 and is increased $500 each year until it reaches $2,500 in 2006.

Retirement Plans - Commencement of Benefits - The Small Business Job Protection Act of 1996 (SBA’96) modified the rule that requires all participants in qualified plans to commence distributions by age 70 ½ without regard to whether the participant is still employed by the employer and generally replaced it with the rule in effect before the Tax Reform Act of 1986. Under the new rules, distributions generally are required to begin by April 1 of the calendar year following the later of: (1) the calendar year in which the employee attains age 70 1/2; or (2) the calendar year in which the employee retires. However, in the case of a 5% owner of the employer, distributions are required to begin no later the April 1 of the calendar year following the year in which the 5% owner attains age 70 ½. The provision is effective for years beginning after December 31, 1996.

Reminder: Employee Benefit Plan Documents Must Be Amended - All Employee benefit plan documents must be amended to include the changes incorporated by the “GUST” amendments (the Uruguay Round Agreements Act (GATT), the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), the Small Business Job Protection Act of 1996(SBA’96), the Taxpayer Relief Act of 1997, and the IRS Restructuring and Reform Act of 1998). Conforming amendments for non-prototype plans must have been adopted by December 31, 2001. The deadline for prototype plans is December 31, 2002.

TAX DEPOSIT RULES AND REQUIREMENTS

The following chart is a summary of Federal and Pennsylvania state payroll tax deposit requirements.

DEPOSIT FREQUENCY

FEDERAL

STATE

Quarterly

If the payroll tax liability is < $2,500 in a calendar quarter the payment can be submitted quarterly with the filing of the Form 941. The due date is the last day of the month following the close of the quarter.

If the payroll tax liability is < $300 in a calendar quarter the payment can be submitted quarterly with the filing of Form PA-501/W-3. The due date is the last day of the month following the close of the quarter.

Monthly

If the payroll tax liability is > $2,500 but < $50,000 during the four calendar quarters in the lookback period (July 1 through June 30 of prior year) taxes must be deposited on or before the 15th day of the following month in a federal reserve bank or authorized financial institution.

If the payroll tax liability is > $300 but < $1,000 in a calendar quarter the taxes must be paid on or before the fifteenth day of the following month using Form PA-501.

Semiweekly-Fed

Semimonthly -PA

If the payroll tax liability is > $50,000 during the four calendar quarters in the lookback period, taxes must be deposited on or before Wednesday (for payment date of Wednesday, Thursday and/or Friday), or Friday (for payment date of Saturday, Sunday, Monday and/or Tuesday). See below for those employers required to deposit using the Electronic Federal Tax Payment System (EFTPS).

Special One-Day Rule Exception: In the event an employer accumulates employment taxes of $100,000 or more in any deposit period the liability must be deposited on the next banking day after the threshold is reached, regardless of the employer’s deposit schedule. A monthly depositor, in this situation, becomes a semiweekly depositor on that day and remains for the remainder of the calendar year and for the following calendar year.

See: ”Electronic Federal Tax Payment System”

If the payroll tax liability is > $1,000 the taxes must be paid on or before the third business day following the 15th and last days of the month using Form PA-501 or the Electronic Funds Transfer Program (see succeeding EFT info. if the deposit is $20,000 or more).

ELECTRONIC PAYMENTS

Federal - Electronic Federal Tax Payment System (EFTPS) - Employers that were required to deposit more than $200,000 in payroll taxes during the 2001 calendar year must begin making all federal deposits electronically for liabilities on after January 1, 2003. Enrollment in EFTPS is not automatic, and must be done through filing Form 9779, EFTPS Business Enrollment Form.

Internet Payment System – the IRS began an internet payment system in 2001. Payments can be made online with no transaction costs. Taxpayers can enroll at www.eftps.gov.

State - Electronic Funds Transfer (EFT) Program - The Commonwealth of Pennsylvania has an electronic Funds Transfer (EFT) program. EFT is required to be used for payments of $20,000 or more, but enrollment is open to anyone else who wishes to participate. Enrollment in the PA EFT program is not automatic and must be done through filing Form REV 331A Authorization Agreement For Electronic Funds Transfer (EFT) Of Tax Payments. Do not remit withholding of PA Personal Income Tax from nonresident partners or shareholders through the EFT program, continue to send checks for these payments.

CORPORATION TAXES

	FEDERAL	STATE
Corporation Tax Rates	For 2002 tax returns, the tax brackets are unchanged as follows: Taxable Income Tax Rate $ 0 - 50,000 15% 50,001 - 75,000 25% 75,001 - 100,000 34% 100,001 - 335,000 39% 335,001 -10,000,000 34% 10,000,001 - 15,000,000 35% 15,000,001 -18,333,333 38% 18,333,334 - and over 35%	For 2002 and 2003 tax returns the Pennsylvania Corporate Net Income (CNI) rate is 9.99%. The 2002 PA Capital Stock Tax (CST) rate is .724% (.699% in 2003), with the exemption remaining $125,000. There is no minimum CST tax.
Net Operating Loss Deduction	Net operating losses arising in 2001 and 2002 can be carried back five years and/or forward 20 years. (Years beginning after 2002 the loss is carried back two years and/or forward 20 years).	PA NOLs created in tax years beginning in 1995 through 1997 can be carried over for 10 years. For tax years beginning in 1998 and after the NOL can be carried over 20 years. There is a $2,000,000 use limitation per tax period.
Corporate Return Due Dates	Calendar year corporations must file their 2002 corporate return on or before March 17, 2003. Fiscal year corporations must file on or before the 15th day of the 3rd month following the year-end.	Calendar year corporations must file their 2002 corporate return on or before April 15, 2003. Fiscal year corporations must file on or before the 15th day of the 4th month following the year-end.
Estimated Payment Due Dates	2003 deposit due dates for calendar year corporations are: Installment Due Date 1st April 15, 2003 2nd June 16, 2003 3rd September 15, 2003 4th December 15, 2003 Fiscal year corporations are required to make quarterly deposits on the 15th day of the 4th, 6th, 9th and 12th months of their tax year.	2003 deposit due dates for calendar year corporations are: Installment Due Date 1st March 17, 2003 2nd June 16, 2003 3rd September 15, 2003 4th December 15, 2003 Fiscal year corporations are required to make quarterly deposits on the 15th day of the 3rd, 6th, 9th and 12th months of their tax year.

IRC Section 179 Expensing - Under current law, businesses may deduct (rather than depreciate) the cost of certain assets, up to a maximum of $24,000 for 2002. The maximum deduction amount is: 1.) subject to an acquisition limitation: the deduction amount is reduced dollar for dollar where the taxpayer places in service during the tax year qualified tangible personal property in excess of $200,000, and; 2.) the amount of deduction is further limited to the amount of taxable income from any of taxpayer’s active trades or businesses. The current law increases the annual break to $25,000 in 2003 and thereafter.

30% Bonus Depreciation - The Job Creation and Worker Assistance Act of 2002 allows taxpayers to claim a 30% bonus depreciation deduction for assets acquired after September 10, 2001 and before September 11, 2004. This new benefit applies to property with a recovery period of 20 years or less including qualified leasehold improvements. The state of Pennsylvania does not allow the additional 30% bonus depreciation deduction.

2003 TAX DUE DATES CALENDAR

FORM

JAN.

FEB.

MAR.

APR.

Federal Withholdings:

Return

Deposits (Refer to Federal tax deposit requirements)

Monthly depositor

Semiweekly depositor

Sat. through Tue. Payday

Wed. through Fri. Payday

$100,000 or more

941

8109/

EFTPS

8109/

EFTPS

3,10,17,24,31

1,8,15,22,29

Next Business Day

7,14,21,28

5,12,19,26

Same

7,14,21,28

5,12,19,26

Same

4,11,18,25

2,9,16,23,30

Same

Federal Unemployment (FUTA)

Return

Deposits

940

8109/

EFTPS

State Withholdings

Return with deposits

Quarterly filers

Monthly filers

Semimonthly filers

Quarterly reconciliation

PAW-3

PA501

PA501/

EFT

PAW-3

3,21

5,20

5,19

3,18

PA Unemployment (PAUC)

Return with deposits

UC-2

PA Sales & Use Tax

Return with deposits

Quarterly filers

Monthly filers

PA-3

PA-3/

EFT

Public transportation Assistance Tax (PTA)

Return with deposits

PA-4/

EFT

2% Passenger Car Rental Tax

Return with Deposits

Licensing & title credit filing

PA-5

DAS28

2003 TAX DUE DATES CALENDAR

FORM

MAY

JUN.

JUL.

AUG.

Federal Withholdings:

Return

Deposits (Refer to Federal tax deposit requirements)

Monthly depositor

Semiweekly depositor

Sat. through Tue. Payday

Wed. through Fri. Payday

$100,000 or more

941

8109/

EFTPS

8109/

EFTPS

2,9,16,23,30

7,14,21,28

Next Business Day

6,13,20,27

4,11,18,25

Same

7,11,18,25

2,9,16,23,30

Same

1,8,15,22,29

6,13,20,27

Same

Federal Unemployment (FUTA)

Return

Deposits

940

8109/

EFTPS

State Withholdings

Return with deposits

Quarterly filers

Monthly filers

Semimonthly filers

Quarterly reconciliation

PAW-3

PA501

PA501/

EFT

PAW-3

5,20

4,18

3,18

5,20

PA Unemployment (PAUC)

Return with deposits

UC-2

PA Sales & Use Tax

Return with deposits

Quarterly filers

Monthly filers

PA-3

PA-3/

EFT

Public transportation Assistance Tax (PTA)

Return with deposits

PA-4/

EFT

2% Passenger Car Rental Tax

Return with Deposits

Licensing & title credit filing

PA-5

DAS28

2003 TAX DUE DATES CALENDAR

FORM

SEPT.

OCT.

NOV.

DEC.

Federal Withholdings:

Return

Deposits (Refer to Federal tax deposit requirements)

Monthly depositor

Semiweekly depositor

Sat. through Tue. Payday

Wed. through Fri. Payday

$100,000 or more

941

8109/

EFTPS

8109/

EFTPS

5,12,19,26

3,10,17,24

Business

Day

3,10,17,24

1,8,15,22,29

Same

7,14,21,28

5,12,19,26

Same

5,12,19,26

3,10,17,24

Same

Federal Unemployment (FUTA)

Return

Deposits

940

8109/

EFTPS

State Withholdings

Return with deposits

Quarterly filers

Monthly filers

Semimonthly filers

Quarterly reconciliation

PAW-3

PA501

PA501/

EFT

PAW-3

3,18

3,20

5,19

3,18

PA Unemployment (PAUC)

Return with deposits

UC-2

PA Sales & Use Tax

Return with deposits

Quarterly filers

Monthly filers

PA-3

PA-3/

EFT

Public transportation Assistance Tax (PTA)

Return with deposits

PA-4/

EFT

2% Passenger Car Rental Tax

Return with Deposits

Licensing & title credit filing

PA-5

DAS28

SPECIAL REPORTING DATES

Friday, January 31, 2003

2002 Form W-2 to employees

2002 PA W-2 to Department of Revenue

2002 Form 1099 to Recipient

2002 Form 8300 Notification to Vehicle Purchaser

Friday, February 28, 2003

2002 Form W-3 w/W-2 Copy to SSA -

Unless filed electronically

2002 Form 1096 w/1099 Copy to IRS

Monday, March 31, 2003

2002 Form W-3 w/W-2 Copy to SSA -

If filing electronically

Other

2003 Form 8300 to IRS within 15 days

after date of transaction.

2003 OBSERVED HOLIDAYS AND OTHER SPECIAL DAYS

New Year’s Day 2003 - Wednesday, January 1

Martin Luther King, Jr. Day - Monday, January 20

Presidents’ Day - Monday, February 17

Daylight Savings Time Begins - Sunday, April 6

Mother’s Day - Sunday, May 11

Memorial Day - Monday, May 26

Father’s Day - Sunday, June 15

Independence Day - Friday, July 4

Labor Day - Monday, September 1

Columbus Day - Monday, October 13

Daylight Savings Time Ends - Sunday, October 26

Election Day - Tuesday, November 4

Veterans Day – Tuesday, November 11

Thanksgiving Day - Thursday, November 27

Christmas Day - Thursday, December 25

New Year’s Day 2004 - Thursday, January 1

PENNSYLVANIA SALES/USE TAX, PUBLIC TRANSPORTATION ASSISTANCE FUND TAXES AND FEES (PTA)

The following charts and information can be used as a guide for understanding the Pennsylvania Sales/Use PTA Taxes. They provide a reference for use in the filing requirements for the particular taxes and information on what items are taxable.

FILING REQUIREMENTS

PA SALE/USE TAX

PA PUBLIC TRANSPORTATION ASSISTANCE FUND

The Pennsylvania sales tax rate continues at 6.0% and the 1.0% Allegheny County/Philadelphia sales tax remains in effect.

Sales Tax Collected on Motor Vehicles Sales: Sales tax collected on the sale of vehicles must be submitted to PennDot along with the required title work and Form MV4ST, Vehicle Sales and Use Tax Return/Application for Registration, within 20 calendar days of a vehicle sale.

Sales Tax Collected/Use Tax Incurred on Transactions Other Than Motor Vehicle Sales: Filing of the sales and use tax returns for sales, other than motor vehicles, is based on the amount of your tax liability.

Monthly - if your sales tax liability for the 3rd quarter of the preceding year was $600 or more, you must file on a monthly basis using Form PA-3. Payment is due the 20th day of the following month.

Quarterly - if your sales tax liability for the 3rd quarter of preceding year was less than $600 but more than $75, you must file on a quarterly basis using Form PA-3. Payment is due the 20th day following the close of the quarter.

Semiannual - If your sales tax liability was less than $75 for the entire year of 2002, you need only file on a semiannual basis. The January through June liability is due August 20th. The July through December liability is due February 20th.

The special PTA Fund taxes and fees are collected on vehicle leases, tires and vehicle rentals (see the subsequent chart for details on the tax).

The PTA fees and taxes are to be remitted on a quarterly basis along with form PA-4. Payment is due the 20th day of the month following the close of the quarter.

The annual reconciliation must be filed no later than February 18, 2003 in order to claim a credit of licensing and title fees for the rental vehicles paid to the Commonwealth.

PENNSYLVANIA SALES/USE TAX

2002/2003

TRANSACTIONS

6% SALES/USE TAX

1% Allegheny County and Philadelphia Sales & Use Tax (1)

Demonstrator Vehicles and Free Service Loaners

Less than one year of usage

6% Use tax charged monthly on the fair rental value of the vehicle (the amount charged for the rental of a vehicle in the market for a similar period of time and place.

If the fair rental value is unknown, 3% of the fair market purchase price at the time of acquisition is acceptable as a monthly fair market rental value.

Exceeding 1 year of usage

6% Sales tax is due on the prevailing market price of the vehicle at the time of acquisition less use tax paid throughout the year.

Courtesy Cars, Parts Trucks, Delivery Trucks, Wreckers

6% Sales tax based on the acquisition cost of the vehicle when that vehicle is first placed into use.

Extended Warranties

Sale of extended warranty contract

6% Sales tax based on cost of contract. (2)

Repair under full warranty

Not subject to Sales tax.

Repair under partial warranty

6% Sales tax on the amount owed by the customer.

Repair under warranty with deductible

6% Sales tax on the deductible.

Rebates & Manufacturer Credit Card Rebates

If reduces overall purchase price of vehicle

Not subject to sales tax.

If used as “cash down” and does not reduce overall purchase price

6% Sales tax.

Life, Accident, and Sickness Insurance Coverage

Exempt from PA sales tax if separately itemized.

Trade-In (3)

Total trade-in applied to purchase price at the time of sale

Trade-in reduces purchase price subject to 6% sales tax.

Sale of vehicle to someone other than dealer and proceeds applied to sales price

Not considered a trade-in. Does not reduce purchase price for application of sales tax.

Trade-in with portion applied to purchase and portion provided as cash back to the customer

Trade-in reduces the purchase price subject to 6% Sales tax by the amount applied to purchase. The cash back portion does not reduce the sales price subject to 6% sales tax.

(1) Both Allegheny County and Philadelphia assess a 1% sales and use tax in addition to the 6% Commonwealth of PA sales and use tax. The 1% local sales and use tax applies to all of the same transactions as the 6% sales and use tax. The sale and use of vehicles are deemed to occur at the address of the consumer. For goods and service which are not required to be licensed, the seller’s place of business is where the sale is deemed to occur. Dealers are required to maintain proof of outside residency document used by the consumer that resides outside Allegheny county or the City of Philadelphia when claiming an exemption from the 1% tax on the sale of a vehicle.

(2) Sales tax on extended warranty sales may be remitted monthly by the dealer to the Department of Revenue. The sales tax should not be submitted to the Department of Transportation on its MV-1 or MV4ST forms.

(3) Ownership is required in order to receive trade-in credit, the buyer must have title plus the dealership must take the trade-in into its inventory.

PENNSYLVANIA PUBLIC TRANSPORTATION ASSISTANCE FUND

TAXES AND FEES (PTA)

2002/2003

ITEM

PTA TAX/FEE[11] [12]

EXEMPTION

Tires

New tires for highway use.

New tires included as part of a new vehicle purchase, including the spare tire (regardless if it is a full-size tire or a space-saver tire).

New tires mounted on a used vehicle during reconditioning for sale.

$1.00 fee upon the sale of each new tire.

Subject to the $1 tire fee.

When a dealer withdraws an automobile from inventory and makes a taxable use of the automobile for sales and use tax purposes, the dealer is required to pay the tire fee due.

Subject to the $1 tire fee.

Used tires and tires for off highway use are not subject to the fee.

Governmental purchases and resale are exempt.

The purchase of tires by a dealer to be placed on vehicles to be resold are exempt.

Rental of Motor Vehicles

A rental is the contract for the use of a vehicle for a period of 29 days or less. Even though a rental exceeds 29 days, if the original intent of the transaction was a rental, it would not be considered a lease. In such cases the $2 per day fee would be due.

$2.00 fee for each day or part of day for which the rental company charges the customer for the rental vehicle. (Per day/Per rental occurrence)

The $2.00 fee is added to the vehicle rental cost after the sales tax is charged.

The $2.00 fee is only imposed on rentals subject to PA sales tax. If exempt from sales tax, then it is also exempt from the $2.00 fee.

Exemption includes service loaner new vehicles from a demonstrator account and vehicle loaners supplied under an extended warranty. If any payment is made for the use of the vehicle, the $2 fee is due.

Leases of Motor Vehicles

A lease is the contract for the use of a vehicle for 30 days or more.

3% tax is due on the full consideration of the lease including:

- bank lease acquisition fees

- monthly lease payments

- excess mileage charges; and

- lease down payment/reduction of capitalized costs.

Collected with the monthly lease payment or more frequently.

The 3% tax is only imposed on leases subject to PA sales tax. If exempt from sales tax, then it is also exempt from the 3% tax.

Also exempt are leased truck or truck tractors in PennDOT truck classes 4 or higher (9,001 pounds and up).

FEDERAL LUXURY TAX 2002/2003
TRANSACTIONS	TAX
The luxury tax applies to the first retail sale or lease of the following vehicles: - 4-wheeled vehicles manufactured primarily for use on public streets, roads or highways. - Cars with an unloaded or “curb” weight of 6,000 lbs or less. (This includes demonstrators first sold at retail). - Trucks, vans and sport utility vehicles with a loaded gross vehicle weight of 6,000 lbs. or less (including R/Vs, conversions, mini vans, and sport utilities). - All limousines. (The commercial exemption does not apply).	The Federal Luxury Tax on passenger vehicles is not applicable to any sale or use after 2002[15] The rate for 2002 was 3% of the amount of the negotiated selling price which exceeds $40,000. Sales price includes the total amount of consideration paid by the customer. Consideration includes down payment, amount financed (if any) and the actual cash value (ACV)/appraisal value of any trade-in. Sales price also includes: - charges incidental to readying a vehicle for use (i.e., transportation, insurance, packaging, preparation, installation and delivery charges); - dealer parts and accessories and any required goods or services; - gas guzzler and other applicable excise taxes. Sales price does not include: - extended warranty contracts or optional insurance coverages, or state title registration and license fees when stated as separate charges; - state or local retail sales taxes stated as a separate charge; - any rebates reducing the price of the car.
Exempt Vehicles: - Trucks, vans and sport utility vehicles with a loaded gross vehicle weight of more than 6,000 lbs.	Exempt no luxury tax imposed
- Vehicles to be used by purchasers exclusively in the active conduct of a trade or business of transporting persons or property for compensation or hire (taxicabs, airport vans, hearses, commercial trucks, or vans, etc.). When leased or rented, these vehicles must include a driver to be exempt.
- Vehicles sold to any person for use exclusively in providing emergency medical services. - Vehicles sold to the U.S. government or state or local gov’t.
- Vehicles that have been converted or modified to accommodate people with physical disabilities. (If a customer purchases a vehicle with a GVWR under 6,000 lbs. and which exceeds the $38,000 luxury tax threshold, the vehicle is subject to tax, but there is no luxury tax on any equipment added to help a disabled person enter, exit or operate the vehicle).
- Vehicles sold for export. Dealer must obtain proof.
- Vehicles sold to a lessor who intends to lease it for 1 year or more. This does not include rental companies unless the term of the individual rental is 1 year or more.
Exempt transactions:
- Sales of vehicles to other dealers or leasing companies are exempt from luxury tax if the other dealer is purchasing the vehicles for the purpose of reselling them at retail. Dealers should document these “exempt sales” by having the purchasing dealer or lessor sign an exemption certificate.	Exempt no luxury tax imposed.

[1] Supplemental wages are payments to an employee, in addition to the ordinary wages, which are not regularly recurring, such as bonuses, prizes, awards, back pay, overtime, commissions and severance pay.

[2] No, if it is for use of employer owned or employer leased vehicle. Reimbursement for personal use of non-employer owned property is taxable.

[3] Yes, unless the commission is paid to an insurance agent or solicitor who is paid solely by commission.

[4] Yes, except for: workers compensation benefits; employer reimbursements for medical expenses; payments unrelated to an employee’s absence from work (such as a fixed sum paid for a loss of a limb); damages on account of personal injury; and payments attributable to employee contributions.

[5] Yes, through first six full calendar months following employee absence.

[6] No, for sickness and disability pay unless it is a wage continuation pay where the employee receives regular wages from the employer.

[7] No, if the cafeteria plan qualifies under IRC Section 125 as a hospitalization, sickness, disability, or death plan and does not discriminate in favor of highly compensated individuals.

[8] No, if it meets the definition of a pension for Pennsylvania.

[10] More than 2% S corporation shareholders, including their spouse, children, grandchildren, and parents, are not permitted to participate in cafeteria plans maintained by the S Corporation.

[11] If the purchaser/lessee does not pay the fee/tax to the seller/lessor, the purchaser/lessee is required to pay the tax directly to the Department of Revenue.

[12] Neither the 6% sales tax nor the corresponding PTA fee/tax need to be included in the lease/rental price used to calculate the 6% sales tax or the PTA tax.

[13] If the purchaser/lessee does not pay the fee/tax to the seller/lessor, the purchaser/lessee is required to pay the tax directly to the Department of Revenue.

[14] Neither the 6% sales tax nor the corresponding PTA fee/tax need to be included in the lease/rental price used to calculate the 6% sales tax or the PTA tax.

[15] Note: at the time this document went to print the luxury tax was scheduled to terminate after 2002. No official change regarding the termination of this tax been announced.

TABLE OF CONTENTS
	Topic	Page Number
	Payroll Withholding Rates and Limits	1
	Backup Withholding	2
	New Employee Forms	2
	Minimum Wage and Overtime Requirements	2
	Fringe Benefit Matrix	3
	Pension Plans	4
	Tax Deposit Rules and Requirements	5
	Corporation Taxes	6
	2003 Tax Due Dates Calendar	7-10
	2003 Observed Holidays	10
	Pennsylvania Sales/Use Tax	10-12
	PA Public Transportation
	Assistance Fund Taxes and Fees	13-14
	Federal Luxury Tax	15