Incentives Watch: Commuter Tax Credits Give Employers Incentive to Offer Trip Reduction Programs

Many employers offer commuter benefit programs to their employees; benefits may include transit passes, carpooling reimbursement, or cash-in-lieu of parking. In fact, many states, including Connecticut, Delaware, Georgia, Maryland, New Jersey, and Washington, offer tax credits to encourage employers to provide these benefits to their employees.

Washington recently extended its commute trip reduction tax credit to July 1, 2014. The tax credit is available to employers that provide financial incentives to employees who use public transportation, ridesharing, car sharing, or commute by nonmotorized methods.

Matt Hansen is the Supervisor of Market Development at King County Metro, which is the Seattle area’s transit agency, and also sits on the Washington State Commute Trip Reduction Board. Mr. Hansen recently answered some questions below regarding the tax credit.

Bloomberg BNA: Why does Washington provide a commute trip reduction tax credit?
Hansen: The state provides this tax credit for two primary reasons. The first is to leverage employer investment in commute benefit programs so that more commuters choose to travel in more efficient ways (transit, carpool, vanpool, bike, walk, telework, etc.). The more people choose to not drive alone, the better the transportation system performs. The second reason is that major employers in Washington State are affected by the Commute Trip Reduction (CTR) law, which is a regulatory framework that requires employers to have a commute options program and to survey employees' on their commute behavior every two years. The thinking is that since the state has required these major employers to have programs, and many employers spend significant amounts of money on their program, there should be some relief for those expenses coming from the state. Since the CTR program started in 1991, employers have stepped up: for every $1 the state spends on CTR, employers spend $18.

Bloomberg BNA: What do you think is the impact of the tax credit?
Hansen: The tax credit has been effective in leveraging increased employer investment in commute benefits programs. The information . . . shows that claims for the tax credit have consistently been higher than the funds available and that trend is continuing. [For the 2011 application year, there were 553 applicants seeking approximately $4.8 million in tax credits. For the 2012 application year, there were 754 applicants seeking approximately $6.4 million in tax credits. For 2011 and 2012, the credit is capped at $2.75 million per fiscal year.] It is difficult to separate the impact of the tax credit from the benefits of the overall CTR program. However, the last time the tax credit hit a sunset date, analysis showed that employers that took the tax credit showed more success at reducing commute trips than those that did not.

Bloomberg BNA: Who benefits from the tax credit?
Hansen: Employers benefit by having some of their expenses offset. Commuters benefit because their employers start, maintain, or improve their commute benefits programs. And all commuters benefit because there is less demand for space on the state's highways.

Bloomberg BNA: Are there any downsides to the tax credit?
Hansen: There is always an opportunity cost to expending public resources. However, the resources that are used to "pay back" the general fund have a limited set of uses as they come from a separate account.

Bloomberg BNA: Do you have any other comments about the tax credit?
Hansen: Washington State has ambitious climate and energy goals, which are directly supported by the Commute Trip Reduction program. The more successful we are at reducing the proportion of commuters that drive alone, the less we pollute, the more energy efficient we are, and the better the overall transportation system performs. CTR is a partnership between state and local government and the state's large employers. Part of that partnership is asking that employers make options to driving alone available to employees and to ideally make those options attractive by subsidizing them. Since the state asks employers to participate in this endeavor, it makes sense that the state give something back in the form of a tax credit.

For more information about Washington’s commute trip reduction tax credit, check out Bloomberg BNA’s Credits and Incentives Portfolios.

In other developments . . .

Plug-in electric vehicles are in the spotlight with two pieces of legislation enacted in Colorado: one measure amends the innovative motor vehicle tax credit to clarify that certain plug-in hybrid electric vehicles are eligible, while the other measure imposes an annual registration fee on the vehicles, according to a Bloomberg BNA Weekly State Tax Reportarticle.

By: Kathleen Caggiano

Follow us on Twitter at: @BBNATax .
Join Bloomberg BNA's State Tax Group on
LinkedIn .