Q: I’m an MSP owner and business is booming. In fact, I’m planning on hiring two technicians to assist me in servicing customers. Should I have them take their own cars on service calls or should I purchase company vehicles?
If you’re like many in this business, you were a technician for an existing MSP and decided you wanted to go off on your own. Your business is growing organically and you’re taking things one step at a time. Every MSP faces various “growth questions” along the journey, and the question of vehicles is one every owner eventually must confront.
The reality is that there is no one-size-fits-all answer as to what is right for you. However, we can give you some issues and points to consider regarding marketing, accounting/budgeting, and technical issues as an MSP.
The University at Buffalo is known for having a strong IT program, but its school of business is equally regarded. To learn more about company cars vs. private cars, we reached out to Ann Cohen, clinical associate professor of accounting and law at the University of Buffalo’s School of Management.
“If the company owns the auto, it will bear the costs of ownership — purchase or lease payments, insurance, and maintenance. It can also take deductions for depreciation and other costs of maintaining/operating the cars,” details Cohen, adding that there are limitations for deductions on “luxury cars.” We wouldn’t expect that to be an issue for MSP’s maintaining a fleet for their techs.
Recordkeeping is required
“Records must be maintained regarding use and mileage. If the company allows any personal use by employees, taxable wages must be imputed to the relevant employees in accordance with IRS regulations. Payroll taxes are also assessed on these imputed wages,” explains Cohen.
If your technician decides to swing by in the company car to take his kids to get ice cream, that adds another accounting wrinkle and headache. As long as the vehicles are just used for business, you can cut down considerably on tedious recordkeeping.
Many smaller MSPs have their technicians use their cars and reimburse mileage. This has the advantage of freeing you up from costly vehicle purchases and maintenance, but also leaves a lot of out your control.
If your technician drives a ‘clunker’ and it breaks down, causing them to miss a service call, that can be a problem. If image is a concern of yours and a technician shows up driving a rusty 1970s station wagon, that is something to consider. When it comes to technicians using their cars, there is more recordkeeping necessary to stay on the right side of Uncle Sam.
“The company avoids many costs, but strict recordkeeping requirements apply if the company plans to reimburse the employee for business use. Usually, reimbursements are at the IRS mileage rate (currently 58.5 cents/mile),” notes Cohen.
For instance, if the company maintains an “accountable plan” for reimbursement, which requires more extensive recordkeeping and reporting by the company and the employee, the employee is not taxed on the reimbursement, and there are no payroll taxes. If the company’s expense reporting system is more casual, reimbursement is treated as wages, resulting in higher taxes for the employee plus payroll taxes.
Pros and cons of ‘owning the fleet’
When you utilize company cars, you can control how sensitive IT equipment and software are handled. Instead of items just being tossed into a trunk, you can have special receptacles or shelves in a company vehicle.
Another advantage of owning your fleet show up in image control, less recordkeeping, and increased reliability. On the other hand, the advantage of your technician using their vehicle is if their car experiences trouble, it’s not your $3,000 problem.
One of the single most significant advantages of having your fleet is one that might not be immediately obvious: advertising. If you have two or three crisp-looking company cars smartly painted with your company name, logo, and contact info, you’ll essentially be turning your vehicles into rolling billboards. That has incalculable value, if the right people see them.
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