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Higher Gas Prices Force Companies, Government to Increase Mileage Allowances

Posted on: Tuesday, 5 July 2005, 18:00 CDT

Jul. 3--With gasoline prices skyrocketing higher than Roman candles on July 4th, some companies are increasing the mileage allowance they pay employees.

Even Uncle Sam is getting into the act, raising the national standard for on-the-job mileage from 37.5 cents to 40.5 cents. The 3-cent increase, which went into effect Jan. 1, is the largest increase ever from one year to the next, according to the IRS. It blamed the hike on rising gas prices.

T. Boone Pickens, legendary Texas oilman and now head of the billion-dollar hedge fund BP Capital Management, recently said the United States soon will experience $3-a-gallon gasoline.

"We'll see it within a year," he told CNN's "In The Money."

Pickens said a shortage of oil is the main reason behind the price increase and didn't see how the world could produce more than the 84 to 85 million barrels a day that currently come out of the ground.

That puts pressure on people like Bob Whatley, vice president of Parsons Office Systems. He pays technicians and sales people an allowance for the use of their personal cars on company time.

"If gas goes up, we go up," says Whatley of the allowance.

With gas prices surging, Whatley said, allowances paid by Parsons have increased by more than $100 a month, with employees typically getting between $500 and $600.

Combine gas allowances with higher-priced gas that Parsons puts in its own vehicles, and the company is faced with passing along increased costs to consumers.

"We have gone up once or twice on labor rates," said Whatley. "Not big jumps, but we have to cover expenses."

Relief from high gasoline prices is about as likely as relief from the heat.

AAA Texas reported Friday that gas prices in the state "are again at near-record levels after four weeks of increases." The Texas average for a gallon of regular unleaded jumped 3 cents last week to $2.13.

"That's not quite as much as the week before, when the price in some parts of Texas jumped 8 cents, but it is still going in the wrong direction," said AAA Texas spokeswoman Marie Montgomery.

Those are averages, and better deals can be found at some stations around the state. For example, the Diamond Shamrock at highways 84 and 6 in Waco was selling regular unleaded for $2.05 a gallon on Friday.

But gas generally is high everywhere, and consumers and businesses aren't alone in this battle.

The city of Waco has increased its mileage reimbursement to 40.5 cents per mile for employees who use their own cars to travel outside McLennan County on city business.

Waco also buys fuel to run its police cars, sanitation trucks and other vehicles.

"This budget year, we've already made significant adjustments in our budget just to cover fuel costs," said City Manager Larry Groth. "Next year, we're budgeting a $1.2 million increase for fuel, which is a pretty significant amount for one commodity. It makes balancing the budget pretty difficult."

Bob Chambers, owner of the Automatic Chef/Canteen vending company, said he does not pay mileage allowances because he provides vehicles for employees who distribute food and drinks.

He has noticed a fuel-related dent in his bottom line.

"It's costing me about $1,000 a month more this year than last," he said, adding: "I just have to kind of absorb the extra expense. I certainly would like to raise prices, everybody would like to. But not everybody would understand. A nickel is the smallest amount I could raise prices (in a vending machine). I just try to do a better job of buying my merchandise and tightening my belt wherever I can."

And it does not appear the belt-tightening will end soon.

Oil prices rose by more than $2 a barrel on Friday in a shortened trading session before the holiday weekend.

"Until crude prices drop for a sustained period, we're likely to see continued increases at the pump," said Carol Thorp, another spokeswoman for AAA Texas, an affiliate of AAA National.

Elizabeth Fletcher, human resources manager at Waco's Insurors of Texas, said it now pays a mileage allowance of 40 cents per mile, up from 32 cents earlier this year.

"The change," said Fletcher, "was due to rising gasoline prices."

Stacy Schmitt, director of public affairs for Time Warner Cable, said the local president, vice presidents and directors such as herself receive a flat-rate mileage allowance "that is added to our paychecks."

Others receive 40.5 cents per mile, "in accordance with the IRS guideline."

At the Greater Waco Chamber of Commerce, "we pay mileage if someone drives a personal car on company business," said Linda Beasley, senior vice president.

The rate is 35 cents per mile, said Beasley, adding: "It hasn't gone up recently, and maybe we should look at that."

Waco accountant Hal Whitaker said the 40.5-cent rate established by the federal government is merely a guideline. Businesses can pay more or less than that figure.

"If they pay more, it becomes taxable income to the employee, but companies very seldom pay more," he said. "If they pay less, the individual can deduct the balance on his or her income tax."

The payments also serve as deductions for the companies that make them, said accountant Glenn Koslovsky.

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Copyright (c) 2005, Waco Tribune-Herald, Texas

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Source: Waco Tribune-Herald

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