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Agenda Packets - Board - 2003-02-13h. COSTA MESA SANITARY DISTRICT an Independent Special District AGENDA Arlene Schafer President Greg Woodside Vice President Art Perry Director �R�p rl co 1\1\v Jim Ferryman Secretary Dan Worthington Director Public Comments. Any member of the public may address the Board. Speakers on agenda items should identify themselves to the Clerk before the meeting so that their input can be provided at the time the item is considered. Speakers on non - agenda items will be heard under Public Comments: Pursuant to State law, the Board may not discuss or take action on non - agenda items except under special circumstances. Speakers must limit their remarks to three minutes or as decided upon by the Presiding Officer. The Presiding Officer reserves the right to declare any speaker out of order. In compliance with ADA, contact Joan Revak, (714) 754 -5087, 48 hours prior to meeting if assistance is needed (28 CFR 35.,io2.35.104 ADA Title ll). • Regular Meeting - February 13, 2003 RECOMMENDED '� ACTION Y' I• CALL TO ORDER — 6:00 p.m. — Conference Room 1A, Costa Mesa City Hall X. PLEDGE OF ALLEGIANCE — Costa Mesa Bo y Scout Association /111. INVOCATION — Director Woodside IV. ROLL CALL V. PRESENTATION TO COSTA MESA BOY SCOUT ASSOCIATION /V 1. CONSENT CALENDAR - All matters listed under the Consent Calendar are considered to be routine and will be enacted in one motion in the form listed below. There will be no separate discussion on these items prior to the time the Board votes on the motion, unless members of the Board, staff,. or the public request specific .items to be removed from the Consent Calendar for discussion, in which event the item will be removed from the Consent Calendar and considered in its normal sequence on the agenda. Reports Minute Approval • 1. Recycling Committee Meeting — January 7, 2003 2. Investment Oversight Committee Meeting — January 9, 2003 Trotecting our community's health 6y providing solid waste and sewer collection services. costamesasanitarydutrict. org COSTA MESA SANITARY DISTRICT February 13, 2003 AGENDA Page 2 RECOMMENDED •ACTION 3. Regular Meeting — January 9, 2003 4. Special Meeting — January 13, 2003 5. Special Meeting — February 1, 2003 Manager's Reports 6. Refunds No Refunds 7. Occupancy Report and payment to Costa Mesa Disposal — February 2003 Approve 8. Monthly Spill Report to Regional Water Quality Control Board (RWQCB) Receive and File Engineer's Reports 9. Project Status Report Receive and File Treasurer's Reports 10 Financial Report as of January 31, 2003 Accept Report 11. Report of Monies on Deposit as of January 31, 2003 Receive and File • 12. Warrant Register for January 2003 in the amount of $1,056,768.57 Approve Payment 13. Directors Expenses for the Month of January 2003 Ratify Expenses -------------------------------------- - - - - -- -END OF CONSENT CALENDAR--------------------------------------- - - - - -- VII. WRITTEN COMMUNICATIONS VIII. PUBLIC COMMENTS IX. MANAGER'S REPORTS f A. Anti - Scavenging and Screening of Trash Containers Enforcement Reports Consider /B. CMSD Strategic Plan �1. Year 2003 Strategic Planning Action Items Approve Year 2003 Plan a. Franchising Trash Hauling �E�a_sa� - �G Consider Letter Sent to Mayor b. CMSD Administrative Office jQC(i��f 'y Appoint Feasibility Committee • C. Recycling Reports /1. Waste Diversion Report — January 2003 Receive and File Protecting our community's health 6y providing solid waste and sewer colrection services. costamesasanitarydistrict. org COSTA MESA SANITARY DISTRICT February 13, 2003 AGENDA Page 3 RECOMMENDED • ACTION Contract Payment to CR Transfer for recycling services and disposal for January 2003 1. Payment for January 2003 Services Approve Subject'to Verification of Diversion Report by Staff E. Recycling Committee — February 11, 2003 —.9:30 a.m. Director Worthington and Director Schafer 1. Telephone Book Recycling Program a. Schedule of Award Presentations Accept Report hristmas Tree Recycling Program Accept Report Holiday Card Recycling Program Accept Report E -Waste Verbal Update X. ENGINEER'S REPORTS • A. Annexation No. 252 — Home Ranch, Making Application to LAFCO Adopt Resolution B. Waste Discharge Requirements — FOG Study Verbal Update I. TREASURER'S REPORTS (�iV H• Mileage Reimbursement �C Consider �. Two Percent Assessment Appeals Case Update C. Investment Oversight Committee Roster Receive and File Xll. ATT NEY'S REPORTS Ordinance No. 41 Enacting Grease Control Regulation Adopt Ordinance B. Ordinance No. 42 Requiring Contractors to Post Bonds Adopt Ordinance ✓ "' Revised Agreement with CR Transfer Approve XIII. LOCAL MEETINGS ;/A , Or nge County Sanitation District • 1. Regular Meeting — January 22, 2003 Accept Report lnrotecting our community's health 6y providing sold waste and sewer colrection services. costamesasanitarydstrict. org COSTA MESA SANITARY DISTRICT February 13, 2003 AGENDA Page 4 RECOMMENDED • ACTION ZBSarta'Ana River Flood Protection Agency 1. Meeting – January 23, 2003 Accept Report C. Independent Special Districts of Orange County (ISDOC) Consider �J Annual Meeting – January 30, 2003 %S Accept Report Local Agency Formation Commission (LAFC0) �°— Consider "ar6 90y , �I(' Water Advisory Committee of Orange County (WACO) Consider S� Orange County Council of Governments (OCCOG Consider G. Costa Mesa Chamber of Commerce Consider �HCalifornia Special Districts Association (CSDA) Consider XIV. OLD BUSINESS A. CostAmazing - City of Costa Mesa 50 -Year Annivers - Update CSDA Governance Series Workshop – Rancho Mirage - Accept Report January 16, 2002 XV. N BUSINESS A. Regular Meeting Time for March, April and May 2003 Consider Change of Meeting Date and Time /C– CSDA Governance Academy Consider Attendance Costa Mesa Chamber of Commerce Membership Investment in the Approve Payment Amount of $380.00 for the period 4/01/03 to 4/01/04 XVI. ORAL COMMUNICATIONS AND DIRECTOR COMMENTS XVII. ADJOURNMENT • Trotecting our community's health by providing solid waste and sewer collection services. costamesasanitarydistrict. org SANlt�Rf tj N! p auo ne '� O ! n •� V y f yc�'PPOB�•��`�w • COSTA MESA SANITARY DISTRICT MINUTES OF RECYCLING COMMITTEE MEETING JANUARY 7, 2003 The Costa Mesa Sanitary District Recycling Committee met at 9:30 a.m. in conference room 1A at the Civic Center, 77 Fair Drive, Costa Mesa. Directors Present: Dan Worthington, Greg Woodside Staff Present: Rob Harriers, Tom Fauth, Joan Revak, Bobby Young TELEPHONE BOOK RECYCLING PROGRAM A. PROGRAM REPORT • Ms. Revak, Program Manager, presented the final report on the 2002 Telephone Book Recycling Program, reporting 16,200 books (32.40 tons) as the total number of books collected in the program that concluded on December 20, 2002. This compares with 14,070 books (28.14 tons) collected in the 2001 Program, an increase of 13.15 %. Ms. Revak reported, for the fourth year in a row, Kline School was the big winner in the elementary school category; TeWinkle came out on top in the middle school contest, and Estancia was again the winner in the competition between the high schools. Ms. Revak reported the District will be awarding $10.554 in prize money and a schedule of presentation dates is forthcoming. Fourteen students from three schools participated in the CMSD Quiz, a new feature to the 2002 program, and Costa Mesa High School 8th grade student Shea Huffman scored 100 %, student Kayla Donohue of Adams School had 11 out of 15 correct answers and Estancia High School student Laura Morton had 10 correct answers. The three students will receive CD gift certificates for their efforts. Ms. Revak presented charts highlighting the 2002 Program including a history of the program from its inception. • Because of the outstanding participation by Kline School, the Committee will recommend to the Board of Directors approval of an increase in the award amount. Protecting our community's health 6y prm4&ng solid waste andsewer col%ction services costamesasanitaryd4trict. org SANlT�4`' O o e 4PORA��\ Costa Mesa Sanitary District Minutes of Recycling Committee Meeting January 7, 2003 • Page 2 B. TELEPHONE BOOK RECYCLING CONTAINER AT KLINE SCHOOL As previously reported to the Board, Ms. Revak elaborated on a complaint regarding the telephone book recycling bin at Kline School on E. 18th Street. The City requested Susan Kline remove the bin but later recanted the decision when they acknowledged the bin was a recycling receptacle and not a trash bin. Ms. Revak further noted the City Council directed its Staff to review and report on the use of small dumpsters as recycling containers for the program. The City Staff will be studying whether the bins should be in a screened area or enhanced in appearance and prominently displayed, or exempted from normal trash bin regulations and left as is. As part of the study, District Staff provided pictures of each of the 27 schools participating in the telephone book recycling program. District Staff is also studying enhancing the appearance of the bin and believes the bins should be prominently displayed to further the purpose of this valuable education program. CHRISTMAS TREE RECYCLING PROGRAM Ms. Revak reported Christmas trees are being collected with the regular trash and taken to CR Transfer where they are separated from the trash and recycled. A report on the tonnage will be given at the February 2003 Recycling Committee meeting. HOLIDAY CARD RECYCLING PROGRAM Mr. Fauth informed the Committee that the Annual Holiday Card Recycling Program is underway with containers placed at the following sites: Lobby of City Hall Costa Mesa Senior Center Ramsay Rexall Drugs White Front Pharmacy Costa Mesa Federal Credit Union Steven's Pharmacy College Pharmacy & Surgical Supply Cards will be collected through the end of January 2003. Tmtecting our community's heafth by providing soCul waste and sewer collection services. costamesasanitarydi trict. org n U • • • 1p i PUBLIC COMMENTS There were no public comments. The meeting was adjourned at 10:07 a.m. Secretary Costa Mesa Sanitary District Minutes of Recycling Committee Meeting January 7, 2003 Page 3 President Pmtecting our community's health 6y providing soCsd waste and sewer colCection services. costamesasanitaryd4tnct, org �wSASAN(Tq�y' f yc0'PpORA'��`� COSTA MESA SANITARY DISTRICT MINUTES OF INVESTMENT OVERSIGHT COMMITTEE MEETING JANUARY 9, 2003 CALL TO ORDER The meeting was called to order at 11:01 a. m. by Director Perry. ROLL CALL Committee Members Present: Mr. Marc Puckett, Treasurer Mr. Rob Hamers, District Manager Director Greg Woodside (rotating committee member) Director Art Perry (rotating committee member) Staff Members Present: Joan Revak, Clerk of the District TREASURER'S REPORT FOR THE QUARTER ENDED DECEMBER 31, 2002 NEW BUSINESS OPEN DISCUSSION ADJOURNMENT Approved by: • Mr. Puckett presented the Treasurer's Report and discussed the recent investing activity of the District. Discussion followed. Mr. Hamers requested Mr. Puckett to prepare a committee roster for the Investment Oversight Committee. Mr. Puckett indicated that the roster would be included with the next Board agenda packet. 1. CMSD FINANCIAL STATEMENTS Mr. Puckett indicated that the financial statements would be a standing agenda item on the committee agendas to provide committee members an opportunity to ask more detailed questions regarding the financial statements if they so desired. There were no items discussed under open discussion The meeting adjourned at 11:30 a. m. Secretary, Costa Mesa Sanitary District Board of Directors President, Costa Mesa Sanitary District Board of Directors • • COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS REGULAR MEETING JANUARY 9, 2003 The Board of Directors of the Costa Mesa CALL TO ORDER Sanitary District met in regular session on January 9, 2003, at 6:00 p.m. Conference Room 1 -A at the Civic Center, 77 Fair Drive, Costa Mesa. President Schafer called the meeting to order at 6:00 p.m. Costa Mesa Girl Scout Association led the Pledge of Allegiance. Vice President Woodside gave the invocation. ROLL CALL DIRECTORS PRESENT: Arlene Schafer, Art Perry, Greg Woodside, James Ferryman, Dan Worthington DIRECTORS ABSENT: None STAFF PRESENT: Robin Hamers, Manager /Engineer; Alan Burns, Legal Counsel; Tom Fauth, Assistant Manager; Joan Revak, Clerk of the District; Marc Puckett, Finance Director; Bobby Young, Finance, Ron Shef, District Ordinance Enforcement Officer OTHERS PRESENT: Girl Scouts Troup 1148 Marion Rutledge Shanice Douglas Beth Llamas Jazzmyne Cry Nassim Kavezade Lynette Franklin Jasimine Kavezade Margaret Rutledge Carol Hamilton Paula Llamas Cara Holmes Pedro Llamas - COSTA MESA SANITARY DISTRICT 'fro ■.�� MINUTES OF BOARD OF DIRECTORS REGULAR MEETING JANUARY 9, 2003 PAGE 2 PRESENTATION TO COSTA MESA GIRL SCOUT ASSOCIATION Director Worthington presented the Costa Mesa Girl Scout Association with a check for $100.00, a portion of monies received from the sale of a set of 1928 model Ford rims and tires that had been brought to the Used Tire Roundup. The Costa Mesa Girl Scout Association was chosen as a recipient of the money in recognition of their efforts in conservation, environmental awareness and recycling. Mr. Harriers reported he represented the District at a Girl Scout event at the Orange County Fairgrounds last year with a booth where the Girl Scouts viewed the CMSD video. Mr. Hamers reported the Girl Scouts have a fantastic program and the District is very happy to contribute to their good cause. The Girl Scout Troup left the meeting. . ............................... CONSENT CALENDAR . ............................... President Schafer requested the Minutes of the Regular Meeting, December 12, 2002, be revised as follows: ORAL COMMUNICATIONS AND DIRECTORS COMMENTS President Schafer reported there was a need to add an item to the agenda regarding Director Ferryman's retirement from the school district board. The retirement event was later that evening. Director Perry motioned that the need arose after the agenda was prepared and there was a need to take immediate action. Vice President Woodside seconded. Motion carried 4 -0. Director Ferryman did not vote. Director Perry motioned to approve a proclamation for Director Ferryman to be presented to Director Ferryman at a meeting later that evening. Vice President Woodside seconded. Motion carried 4 -0. Director Ferryman did not vote. Director Ferryman motioned to approve the Consent Calendar with the modification to the paragraph regarding approval of a proclamation for Director Ferryman. Director Perry seconded. Motion carried 5 -0. • .S,,sMLp°4 g COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS REGULAR MEETING JANUARY 9, 2003 PAGE 3 REPORTS MINUTE APPROVAL Minutes of Special Meeting December 9, 2002 Minutes of Recycling Committee Meeting, December 10, 2002 The Minutes of the Special Meeting of December 9, 2002, were approved as distributed. The Minutes for the Recycling Committee Meeting of December 10, 2002, were approved as distributed. Minutes of Regular The Minutes for the Regular Meeting of December Meeting, 12, 2002, were revised as noted and approved. December 12, 2002 MANAGER'S REPORTS REFUNDS There were no refunds for the month of December 0 2002 OCCUPANCY REPORT Occupancy Report and The Trash Occupancy Count documented a Payment of $177,905.98 decrease of 4 units in the occupancy report for to Costa Mesa Disposal — solid waste collection as of January 1, 2003. January 2003 Therefore, the total for January is 21,044. Board directed Staff to prepare a warrant for $177,905.98 to Costa Mesa Disposal on February 1, 2003, for payment for January trash collection based on the January count of 21,044. Monthly Spill Report to The Monthly Spill Report to the Regional Water Regional Water Quality Quality Control Board (RWQCB) for December Control Board (RWQCB) 2002 was accepted as submitted. • COSTA MESA SANITARY DISTRICT ' MINUTES OF BOARD OF DIRECTORS REGULAR MEETING JANUARY 9, 2003 PAGE 4 ENGINEER'S REPORTS Project Status Report The Project Status Report dated January 2003, was accepted as submitted. TREASURER'S REPORTS Financial report as of The Financial Report for December 31, 2002, was December 31, 2002 accepted as submitted. Report of Monies on The Report of Monies on Deposit as of December Deposit as of December 31, 2002, was received and filed. 31, 2002 Warrant 2003 -7 for Warrant Resolution #CMSD 2003 -7 was approved, December 2002 in the authorizing the President and Secretary to sign the amount of $703,871.44 warrant and instructing the Finance Department to draw a warrant from the Costa Mesa Sanitary District General Fund in the amount of $703,871.44. Directors Expenses for the Director Expenses for the Month of December Month of December 2002 were ratified as follows: 2002 Director Ferryman: $510.00 Director Perry: $680.00 President Schafer: $1,020.00 Vice President Woodside: $340.00 Director Worthington: $510.00 .......................... END OF CONSENT CALENDAR ......•••.............•••• WRITTEN COMMUNICATIONS Mr. Hamers reported receiving a thank you card from St. Jude's Ranch for Children, recipient of the recycled cards from the Holiday Card Recycling Program. • • • • • a COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS REGULAR MEETING JANUARY 9, 2003 PAGE 5 PUBLIC COMMENTS There were no public comments made. MANAGER'S REPORTS ANTI - SCAVENGING AND SCREENING OF TRASH CONTAINERS ENFORCEMENT REPORTS POLICE REPORT Mr. Hamers presented a memorandum providing the scavenging statistics for October as follows: Location Calls for Service Cite /Arrest Area 1 0 1 Area II 2 1 Area III 1 2 Area IV 0 0 TOTAL 3 4 DISTRICT ORDINANCE ENFORCEMENT OFFICER REPORT Mr. Hamers presented the ordinance enforcement summary report for the four -week period beginning November 25, 2002 and ending December 22, 2002. Mr. Shef distributed approximately 45 courtesy flyers during this period. Director Worthington commented he was disappointed to read of the resident who displayed anger by throwing his containers over the gate when the Ordinance Enforcement Officer attempted to talk to him regarding his containers being in view. Mr. Shef reported he was in the area a few days later and the containers for this individual were in the bed of his truck, backed up to the garage area in an effort to comply with hiding the containers from view. Mr. Burns reported the District does have recourse should the containers be damaged. Mr. Shef reported the containers did not appear damaged. CMSD STRATEGIC PLAN COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS REGULAR MEETING JANUARY 9, 2003 f PAGE 6 YEAR 2002 STRATEGIC PLANNING ACTION ITEMS Mr. Hamers presented the 2002 Strategic Planning Action Items report and stated it was as completed as planned and will be filed. Strategic Planning Special Meeting — January 13, 2003 Ms. Revak reported the Special Meeting has been set for Monday, January 13, 2003, at noon. STRATEGIC PLANNING WORKSHOP - JANUARY 31, 2003 AND FEBRUARY 1, 2003. Ms. Revak finalized the January 31St interviews with Board Members. RECYCLING REPORTS WASTE DIVERSION REPORT - DECEMBER 2002 The Waste Diversion Report for December showing a diversion rate of 50.03 percent was received and filed. CONTRACT PAYMENT TO CR TRANSFER FOR RECYCLING SERVICES AND DISPOSAL FOR DECEMBER 2002 PAYMENT FOR DECEMBER 2002 SERVICES Director Ferryman motioned to approve contract payment to CR Transfer for recycling services and disposal for the month of December 2002, in the amount of $161,372.61, subject to verification of Staff. Director Woodside seconded. Motion carried 5 -0. • • - COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS REGULAR MEETING roan° JANUARY 9, 2003 PAGE 7 RECYCLING COMMITTEE - JANUARY 7, 2003— 9:30 A.M. DIRECTOR WORTHINGTON AND DIRECTOR WOODSIDE TELEPHONE BOOK RECYCLING PROGRAM PROGRAM REPORT Director Worthington provided a final report on the School Telephone Book Recycling Program, ending on December 20, 2002, with a total of 16,200 books (32.40 tons) collected. This compares with 14,070 books (28.14 tons) collected in the 2001 program, an increase of 13.15 %. Kline School won in the elementary school category, Charles TeWinkie in the middle school category, and Estancia High School in the high school category. Awards totaling $10,370 will be distributed to the schools. Director Worthington suggested changing the award to Kline School due to the fact that they have a small number of students (70) and brought in the largest number of books in the elementary category (1,520 books, or 86.86 pounds per student). Director Worthington suggested the program be analyzed for next year with the percentage of books versus students be taken into consideration when determining the distribution formula. Director Perry proposed adding an additional $250 to the Kline School award. The subject of an additional award to the Kline School will be placed on the agenda for the Special Meeting on Monday, December 16, 2002. TELEPHONE BOOK RECYCLING CONTAINER AT KLINE SCHOOL Ms. Revak reported on a complaint regarding the telephone book recycling bin at Kline School on E. 18th Street. The City requested Susan Kline remove the bin but later recanted the decision when they acknowledged the bin was a recycling receptacle and not a trash bin. Ms. Revak further noted the City Council directed its Staff to review and report on the use of small dumpsters as recycling containers for the program. The City Staff will be studying whether the bins should be in a screened area or enhanced in appearance and prominently displayed, or exempted from normal trash bin regulations and left as is. COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS ]REGULAR MEETING JANUARY 9, 2003 PAGE 8 CHRISTMAS TREE RECYCLING PROGRAM Director Worthington reported for the second year, the Christmas Tree Recycling Program consisted of trees being collected from the curb by Costa Mesa Disposal with the regular trash. Although the process has changed, the trees are still recycled. President Schafer requested an update on the final result of green waste. HOLIDAY CARD RECYCLING PROGRAM Director Worthington reported the Holiday Card Recycling Program would continue to the end of January. The cards will be sent to St. Jude's Ranch for Children. Mr. Hamers suggested he call the cable TV station and discuss some of the District's programs and offer to provide an interview with Director Worthington. Director Worthington thanked Staff for the new ad in the Recreation Review. ENGINEER'S REPORTS ANNEXATION NO. 252 - HOME RANCH, MAKING APPLICATION TO LAFCO Mr. Hamers reported the item is not ready for adoption and is anticipated to be ready in February 2003. TREASURER'S REPORTS 457(C) DEFERRED COMPENSATION FOR DIRECTOR PAYMENT Mr. Puckett provided a brief overview of the 457 Deferred Compensation Program and offered in -depth review with Board members individually. Once the plan has been adopted, participation in the plan is entirely voluntary. Mr. Puckett introduced a Resolution Adopting a Deferred Compensation Plan and Trust/Custodial Document and offered the option for the District to join the City's program. Director Ferryman motioned to adopt the Resolution, with the first option of the District joining the City's current program, and second option, the District having their own plan. Director Perry seconded. Motion carried 5 -0. 0 COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS REGULAR MEETING ' �rouri° -' JANUARY 9, 2003 PAGE 9 Director Worthington thanked Director Ferryman for bringing the 457(c) Deferred Compensation Program to the Board's attention. Board members wishing to participate will contact Mr. Puckett. INVESTMENT OVERSIGHT COMMITTEE MEETING - JANUARY 9, 2003 Mr. Puckett reported the Investment Oversight Committee Meeting was held prior to the regular Board Meeting and the Minutes would be presented at the February Regular Board Meeting. CMSD AUDITED FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2002 Mr. Puckett presented the Audited Financial Report for Fiscal Year Ended June 30, 2002 provided a brief synopsis of the report, and answered questions for the Board. The Board commended Mr. Puckett for the excellent job he is doing for the District. . ATTORNEY'S REPORTS ORDINANCE NO. 40 - CLARIFYING HOW DISTRICT WILL PAY FOR STANDARDIZED TRASH CONTAINERS FOR NEWLY DEVELOPED PROPERTY Mr. Burns presented a proposed Ordinance, ORDINANCE NO. 40 — CLARIFYING HOW DISTRICT WILL PAY FOR STANDARDIZED TRASH CONTAINERS FOR NEWLY DEVELOPED PROPERTY. Discussion was held. Vice President Woodside motioned to approve Ordinance No. 40, Clarifying How District Will Pay for Standardized Trash Containers for Newly Developed Property. Director Worthington seconded. Motion carried 5 -0. ORDINANCE NO. 41 ENACTING GREASE CONTROL REGULATIONS INTERIM ORDINANCE Mr. Hamers reported Mr. Burns is part of the legal committee working on the model grease control ordinance for the entire County to incorporate. +sauLf°4 COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS REGULAR MEETING �0roun JANUARY 9, 2003 1 PAGE 10 Mr. Hamers reported the Interim Ordinance was slated to appear on the February agenda, but was placed on the January agenda in case there was an urgent issue or new event for discussion. Mr. Hamers reported discussions with the City will become clearer within the next few weeks. Mr. Hamers suggested the Board consider waiting to adopt an Interim Ordinance until after talking with the City in February, adding that current costs are not extremely significant. Mr. Burns expressed he felt it important to recognize the difference in interests between the District and the City, and to consider that during the negotiation process. Board accepted the report and directed Staff to bring the item back in February as discussed at the 2002 December Regular Board Meeting. AUTHORITY TO ENFORCE GREASE CONTROL IN THE ABSENCE OF AN ORDINANCE Mr. Burns presented a memorandum discussing what the District's authority might be in the absence of an ordinance. Mr. Burns strongly urged the Board to adopt an interim ordinance to establish the necessary authority. REVISED AGREEMENT WITH CR TRANSFER Mr. Burns reported he worked with Mr. Puckett and Mr. Hamers to develop a draft of the Revised Agreement with CR Transfer, approved in concept at the December 2002 Regular Board Meeting. Mr. Puckett reported the key changes were clarifying the CPI language with a limit on the annual CPI as well as over the term of the agreement. The revised agreement will be presented to CR Transfer, and a signed agreement is anticipated. 'a COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS REGULAR MEETING ` JANUARY 9, 2003 PAGE 11 LOCAL MEETINGS ORANGE COUNTY SANITATION DISTRICT REGULAR MEETING — DECEMBER 18, 2002 Director Ferryman attended the December 18, 2002, Orange County Sanitation District meeting and reported the following: • Committee approval of 12.5 million dollars in project funding in the last three years, 4.5 million spent to date • Director Ferryman to attend Orange County Symposium and represent OCSD and will provide a report to the CMSD Board SANTA ANA RIVER FLOOD PROTECTION AGENCY Director Ferryman reported there was no Santa Ana River Flood Protection Agency meeting. INDEPENDENT SPECIAL DISTRICTS OF ORANGE COUNTY ( ISDOC) ANNUAL MEETING — JANUARY 30, 2003 AT MWDOC BI- ANNUAL ELECTION OF OFFICERS President Schafer reported the following: The Annual General Meeting will be held on Thursday, January 30, 2003, at MWDOC. Speakers will be Phil Anthony, Chairman of the Orange County Council of Governments, and Chris Norby, newly - elected Supervisor to the 3rd District. Election of ISDOC officers will be held. President Schafer will not be voting in the election because she is running for a position and requested an alternate be appointed. Director Ferryman reported he would be attending the ISDOC meeting. Vice President Woodside motioned to appoint Director Ferryman as designated voting member at the ISDOC meeting of January 30, 2003, representing the Costa Mesa Sanitary District. Director Perry seconded. Motion carried 5 -0. h +ssuiL�� s" COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS REGULAR MEETING JANUARY 9, 2003 PAGE 12 Directors Schafer, Ferryman, Worthington, and Perry will be attending the ISDOC meeting. Vice President Woodside will advise Ms. Revak of his availability to attend the ISDOC meeting. CALIFORNIA SPECIAL DISTRICTS ASSOCIATION (CSDA) President Schafer will be attending the January 10, 2003 meeting in Sacramento. Government Affairs Day in Sacramento will be held March 31 to April 1, 2003. The annual CSDA Conference will be at the Squaw Creek Resort in Lake Tahoe, September 16 -18. The topic will be rising costs may make companies leave California. President Schafer provided materials for the Board's perusal. 2003 MEMBERSHIP DUES OF $2,330.00 Director Ferryman motioned to approve membership dues of $2,330.00 for CSDA. Director Perry seconded. Motion carried 5 -0. LOCAL AGENCY FORMATION COMMISSION ( LAFCO) COSTA MESA AND NEWPORT BEACH ANNEXATIONS President Schafer attended the January 8, 2003, meeting and reported the following: • President Schafer was elected Chairman of Orange County LAFCO. • Supervisor Chuck Smith was elected to Vice Chairman. • Final Study of Moulton Niguel/El Toro consolidation received and filed. • Reconsideration of Emerald Bay Service District Reorganization will come back to LAFCO Board with all three parties providing reports (Emerald Bay, Laguna Beach County Water District, and Moulton Niguel Water District). C7 1 ] - COSTA MESA SANITARY DISTRICT 1 ` MINUTES OF BOARD OF DIRECTORS REGULAR MEETING ��routNra JANUARY 9, 2003 PAGE 13 WATER ADVISORY COMMITTEE OF ORANGE COUNTY (WACO) President Schafer attended the January 3, 2003 meeting and reported the following: • David Cordero, Staff of MWDOC, provided an update on Sacramento - $35 Million Budget Shortfall Program • Don Ortega, Vice President External Affairs, Metropolitan Water District of Southern California, reported on negotiations on the water problem and the Salton Sea • Colorado River water • Gilbert Ivey, Vice President and Board Executive Officer from Metropolitan Water District of Southern California — Let the Recreation begin in 2003 — spoke on Diamond Valley Lake and presented the Master Plan on a regional look and how Diamond Lake will be split up in parts ORANGE COUNTY COUNCIL OF GOVERNMENTS (OCCOG) President Schafer had no report. CHAMBER OF COMMERCE President Schafer attended the January 7, 2003 meeting and reported the following: • Federal, State, County, City, Sanitary District, Edison, OCTA, OC College and State Farm provided reports • Dates for future meetings were presented OLD BUSINESS SPECIAL DISTRICTS INSTITUTE GOVERNANCE SEMINAR & WORKSHOPS FEBRUARY 26 — MARCH 1, 2003 — MONTEREY, CA Director Worthington will be attending the Special Districts Institute Governance Seminar and Workshop for the Wednesday program only. CITY OF COSTA MESA 50 -YEAR ANNIVERSARY Staff reported they have not yet completed their research on the anniversary and had no new information for the Board. +�ssunLtt� COSTA MESA SANITARY DISTRICT > . MINUTES OF BOARD OF DIRECTORS REGULAR MEETING JANUARY 9, 2003 PAGE 14 CSDA GOVERNANCE SERIES WORKSHOPS - RANCHO MIRAGE - JANUARY 16, 2003 Directors Worthington and Schafer, and Ms. Revak will attend the CSDA Governance Series Workshop on January 16, 2003. President Schafer reported this workshop would count as an elective toward a certificate from CSDA. NEW BUSINESS SPECIAL DISTRICT RISK MANAGEMENT ASSOCIATION (SDRMA) REQUEST TO COMBINE SDRMA AND SDWCA RESOLUTION NO. 2003 -665 - APPROVING THE FORM OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF A FIFTH AMENDMENT AND RESTATED JOINT POWERS AGREEMENT Mr. Hamers presented the request to combine SDRMA and SDWCA. Staff had reviewed the information and recommended adoption of the resolution. Director Ferryman motioned to adopt Resolution No. 2003 -665, A RESOLUTION OF THE BOARD OF DIRECTORS OF THE COSTA MESA SANITARY DISTRICT APPROVING THE FORM OF AND AUTHORIZING THE EXECUTION AND DELIVERY OF A FIFTH AMENDED AND RESTATED JOINT POWERS AGREEMENT RELATING TO THE SPECIAL DISTRICT RISK MANAGEMENT AUTHORITY (SDRMA). Vice President Woodside seconded. Motion carried 5 -0. ORAL COMMUNICATIONS AND DIRECTOR COMMENTS Mr. Hamers commended Director Worthington for the presentation to the Girl Scouts. Mr. Hamers congratulated President Schafer on her election as Chairman of LAFCO. Director Ferryman reported he will be working at a new location and will provide Board Members with his new contact information. Vice President Woodside requested a tour of sewer construction in new residential areas 0 +af \MITj�,e COSTA MESA SANITARY DISTRICT 4ytiro \\ MINUTES OF BOARD OF DIRECTORS REGULAR MEETING JANUARY 9, 2003 PAGE 15 ADJOURNMENT At 6:55 p.m., President Schafer adjourned the meeting. SECRETARY • • PRESIDENT h V � y ' yc�RPORA'��`9 COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS SPECIAL MEETING JANUARY 13, 2002 The Board of Directors of the Costa Mesa Sanitary District attended a duly noticed Special Meeting on January 13, 2003 at 12:00 p.m., in Conference Room 1A at the Civic Center, 77 Fair Drive, Costa Mesa. Directors Present: Arlene Schafer, Arthur Perry, Greg Woodside, James Ferryman, Directors Absent: Dan Worthington Staff Present: Robin Hamers, Manager /Engineer; Tom Fauth, Assistant Manager; Joan Revak, Clerk of the District; Marc Puckett, District Treasurer i A. Telephone Book Recycling Program — Approve Monetary Awards to Schools as Shown in Report Ms. Revak presented the revised Telephone Book Recycling Program Report for 2002 with an additional $250 award to Kline School for their exceptional participation in the program. The total number of students and award amount for Paularino School was also corrected. Director Woodside motioned to accept the revision to the report and approve the monetary awards totaling $10,554. Director Perry seconded the motion. Motion passed 4 -0. B. Pre - Meeting for Costa Mesa Sanitary District Strategic Plan 2003 Mr. Hamers explained the purpose of the pre- meeting is to give the Board time to discuss various District matters in an open discussion forum to evaluate the District's performance of its core responsibilities. Discussion ensued as follows: A. Mission Statement • (Protecting our community's health 6y providing solid waste and sewer collection services. Costa Mesa Sanitary District Page 2 Minutes of Special Meeting Held January 13, 2002 B. Objectives Trash Collection. 1. Recycle solid waste to the maximum extent possible. 2. Increase efficiency and friendliness of trash collection program. 3. Increase source reduction by residents. 4. Observe the City of Costa Mesa commercial trash collection program and achieve conversion to exclusive and non - exclusive franchises. Sewer Service. 1. Minimize sewer spills. 2. Maintain system in excellent working order. 3. Plan for time when sewer system reaches life expectancy 4. Take steps to assure residents practice preventative maintenance on their laterals. Public Involvement 40 1. Increase residents knowledge, understanding and support of District functions and operations 2. Provide timely response to inquiries by residents. C. Goals, Action Plan and Work Plan 1. To be determined at 2003 Strategic Planning Workshop. D. Vision 1. To continue as a professional efficient and friendly organization that rapidly achieves its Objectives. 2. Additional vision statements to be determined. E. Values 1. Continue with innovative and extensive recycling programs. 2. Utilize advanced technology in sewer system rehabilitation. 3. Always search for new ideas. 4. Very responsive in all aspects of District business. Protecting our community's health by providing soled waste and sewer collection services. costamesasanitarydistnct. org • • Costa Mesa Sanitary District Page 3 Minutes of Special Meeting Held January 13, 2002 District staff will prepare notes on the discussion of the above items and transmit those to the District's consultant for use during the January 31 & February 1, 2003 Strategic Planning Workshop. F. Public Comments There were no public comments. G. Adjournment The Special Meeting adjourned at 1:29 p.m. Secretary President Protecting our community's health 6y pmviding solid waste and sewer colrection services. costamesasanitarydutrict. org �wS�,SANIT�RP' y 0 aoa I � yc0'�POHA��`w COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS SPECIAL MEETING FEBRUARY 9, 2003 The Board of Directors of the Costa Mesa Sanitary District attended a duly noticed Special Meeting on February 1, 2003 at 8:00 a.m., at the Neighborhood Community Center, 1845 Park Avenue, Costa Mesa. Directors Present: President Arlene Schafer Vice President Greg Woodside Secretary Jim Ferryman Director Art Perry Director Dan Worthington Staff President: Robin B. Harriers, Manager /District Engineer Tom Fauth, Assistant Manager Joan Revak, Clerk of the District • Marc Puckett, Treasurer Strategic Planning Consultant: Rauch Communication Consultants, LLC Robert Rauch Martin Rauch President Schafer called the meeting to order at 8:00 a.m. I. Strategic Planning Mr. Hamers introduced the strategic planning consultants Robert Rauch and Martin Rauch of Rauch Communication Consultants, LLC, from Campbell, California. The Rauches were invited to be the facilitators for the daylong strategic planning session in light of their history as strategic planning consultants for the District. The Rauches were completing their third year as strategic planning consultants for the District. The Rauches began the meeting by reviewing the District's Mission Statement, Objectives, Values, and Vision. After the Objectives were examined and finalized, the Rauches led the Board and Staff through the identification of the yearly action items and goals appropriate for the year 2003. • Costa Mesa Sanitary District Page 2 Minutes of Special Meeting Held February 1, 2003 The Board, Staff and facilitators settled on ten items for the 2003 Action Plan: 1.1 Eliminate Sewer Spills 1.2 Institutional Issues 1.3 Earmark Reserves 1.4 Safety of District Funds 1.5 Review Costs of Special Recycling Programs 1.6 Variable Trash Collection Rates 1.7 Commercial Trash Collection 1.8 Liaison and Outreach with other Agencies 1.9 Public Restrooms 1.10 Public Outreach The Action Plan included a description and timeframe of the actions to be taken under each item. The yearly plan will be brought to the Board for approval at the February 13, 2003 regular meeting. 11. Public Comments No members of the general public were present. The meeting was adjourned at 2:00 PM. The Board of Directors took no action. Secretary President Protecting our community's health 6y promdting solid waste and 'sewer coQectwn serv= . cactamv_atcnMitat dt'.d. ii:t era • C� • TO: Costa Mesa Sanitary District Board of Directors, Rob Hamers, Manager /District Engineer FROM: Ron Shef, Ordinance Enforcement Officer DATE: January 26, 2003 SUBJECT: ORDINANCE ENFORCEMENT SUMMARY REPORT This report covers a five (5) week period beginning December 23, 2002 and ending January 26, 2003. Forty (40) courtesy flyers were submitted to residents this period. Although rain occurred only once this period there were several very windy days which not only blew down empty containers but quite a few full containers were down with contents spilled. Container stability is jeopardized when containers are placed on non -rigid surfaces such as grass or unlevel parkways. This period also included two holidays which resulted in collec- tion being one day late for the balance of each holiday.week. Also these holidays resulted in an increased accumulation of trash including large boxes and debris more difficult than normal to dispose of inside the containers. Courtesy notices were not left during these particular days. Spent Christmas • trees were collected with normal trash during the weeks Follow- ing the holidays with no problems noticed. Collection boxes for the holiday card recycling program were delivered during the holidays to several specific locations conducive to this program. Other projects completed within this period included a photo documentation of several subject District properties along with an address check of ten properties main- taining an excessive count of ninety gallon containers. This actual physical count showed a variance of just under twenty - three percent From original File numbers. A contact was Finally made with the traffic department manager at the Superior Court of CaliFornia- Newport Beach. An appoint- ment was made and meeting held January 13 in order to discuss revisions to the citations as required by the Judicial Council. Copies of documents, with necessary requirements for change, were received and submitted to Staff for review. The initial contact with the Court was made in November 2002. Repeated tries for contact consumed two months prior to this meeting. GraFFiti problems on the containers in the District, in actuality, are few. Coverage of any graffiti with our special spray paint is being undertaken with laminated I.O. tags being attached to those containers requiring them for multi - Family dwellings. • Ordinance Enforcement Report 12/23/2002 - 1/26/2003 DATE STREET INDEX I ADDRESS STREET NAME DESCRIPTION OF VIOLATION ACTIOI 1/21/2003 1705 _ 1812 _ Alaska St. In view Pink Flyer 1/_24/2003 1830 2854 Andros St. In view Pink Flyer 12/24/20_02 2650 _— Carson St. In view Pink Flyer 12/24/2002 2670 __ ____1_148 _ ^_ _273 Cecil PI. Complaint follow_ up - in view _ _ Pink Flyer 1/16/2003 ... a �3..:.::.:.. ..........................:...................................................... 1/24/2003 2670 ...........................,......................................................................... .;::.;:..;Ak 3130 274 ............................:.. 2868 Cecil PI. Corvo PI. At curb V..................::::.::..:. .........:::...:..............i At curb_ Pink Flyer ........................: Pink Flyer 1/21/2003 1 1/21/2003 03 3220 3220 3201 Dakota Ave. _ In view Pink Flyer 3202 Dakota Ave. In view Pink Flyer - -- - 1/24/2003 - -- 3490 -- - - ---- 158_6 — --- -- Ave. ------- - - - - -- - - -- In view At curb / In view_ _ _ J Pink Flyer 1/24/2003 4020 257_2 _ —_ _Elm Greenbriar Ln. Pink Flyer 1/24/20_03 2578 Greenbriar Ln. In view Pink Flyer 1/24/2003 _4020 4320 _ 328 _ Joann St. In view Pink Flyer 1/24/2003 4750 ! _ 246 Loyola Rd. In view Pink Flyer _ 1/24/2003 1/13/2003 1/21/2003 1/24/2003 _ _ 2_50 Loyola Rd. At curb_ v In view In view_ At curb Pink Flyer _4750 4830 _ 3051 Madison Ave. Pink Flyer 4927 109 Masters Cir. Pink Flyer 5130 _ 1730 Minorca PI. Pink Flyer 1/2112003 1/24/2003 5375 Nevada Ave. In view _ At curb In view Pink Flyer Pink Flyer to Resident _ _ 5690 _3344 2905 _ Palau Pl.^ Pemba Dr. 1/21/2003 5880 2897 Pink Flyer to Resident 1/24/2003 5950 _ 1767 Pitcairn Dr. _ At curb Pink Flyer 1/24/2003 6080 322 Princeton Dr. In view Pink Flyer 1/24/2003 1/24/2003 1/13/2003 1/24/2003 6080 323 Princeton Dr. In view At curb In view At curb_ Pink Flyer 6080 364 1054 1874 — Princeton Dr. Pink Flyer 6175 Redding Ave. Pink Flyer 6250 Rhodes Dr. Pink Flyer 1/24/2_0_03 6450 _ _ Rutgers Dr. _ In view_ _ _— Pink Flyer 1/24/2_003 _ _2257 22_72 1711 1800 Rutgers Dr. _ Dresser at curb_ _ _ Blue Flyer to Resident 1/24/2003 _6450 6490 Samar Dr. In view Pink Flyer 1/21/2003 1/13/2003 1/13/2003 1/13/2003 1/13/2003 _ _ 6490 6597 6605 Samar Dr. In view_ _ _ At curb In view In view Pink Flyer _ _ 1071 1,087 1091 1053 3130 1601 _ B Santa Cruz Cir. Pink Flyer Santa Rosa Ave. Pink Flyer 6605 Santa Rosa Ave. Vallejo Cir. _ Van Buren Ave. Pink Flyer 7294 At curb _ At curb Pink Flyer 12/24/2002 1/21/2003 7320 7675 Pink Flyer Wintergreen PI. Complaint follow up - at curb Pink Flyer Jar 2003 10/2003 0 g 1 of 1 M P03 -064 COSTA MESA SANITARY DISTRICT DEPARTMENT OF FINANCE MARC R. PUCKETT INTEROFFICE MEMORANDUM DIRECTOR OF FINANCE TO: SANITARY DISTRICT BOARD OF DIRECTORS FROM: MARC R. PUCKETT, DIRECTOR OF FINANCE DATE: FEBRUARY 5, 2003 SUBJECT: TWO PERCENT ASSESSMENT APPEALS CASE Recently, I received the attached update on the status of the two percent assessment appeals case (Robert Pool v. Orange County). This case was won by the plaintiff, Mr. Pool at the Circuit Court level and is expected to be appealed to the appellate Court shortly. The attached memorandum from David Sundstrom summarizes the projected impacts of this case on all •affected governmental agencies in Orange County including the District. It is projected by the Controller's office that this case may reduce property tax revenues to the District by $21,000 in the first year when refunds are made and reduce the future tax base by an additional $8,000. A short update will be provided to the Board at the Board's February 13`h Board meeting. For purposes of presentation of this matter, I have attached two slides out of a powerpoint presentation to assist in summarizing the issue for the Board. If you have any further questions in regards to this matter, feel free to contact me at your convenience. MARC R. PUCKETT Director of Finance Attachments • DAVID E. SUNDSTROM, CPA AUDITOR- CONTROLLER • • AUDITOR - CONTROLLER COUNTY OF ORANGE HALL OF FINANCE AND RECORDS 12 CIVIC CENTER PLAZA, ROOM 202 POST OFFICE BOX 567 SANTA ANA, CALIFORNIA 92702 -0567 (7 14) 334 -2450 FAY. (714) 334 -2569 www.oc.ca.gov; ac January 29, 2003 TO: Supervisor Thomas Wilson, Chairman, Board Supervisors Supervisor Charles Smith, First District Supervisor James Silva, Second District Supervisor Bill Campbell, Third District Supervisor Chris Norby, Fourth District SUBJECT: Two Percent assessment Appeals Case .JOHN H. NAKANE ('I IIF17 ASS IS FAN At ID[ 'FOR-CON TROLLER �1..SIcCONNELL �SIS'FAN'1' AUDITOR- CONTROLLER CENTRAL OPERATIONS SHAUN NI. SKELLY ASSIST: \NT AUDITOR - CONTROLLER AGENCY ACCOUNTING MAHESH N. PATEL ASSIS "CANT AUDITOR - CONTROLLER INFOR.\,IA PON TECHNOLOGY My letter to County Counsel Ben De Nlayo dated December 19, 2001, provided an initial estimate of the impact of the two percent assessment appeals case on various categories of taxing entities. This is an update to my January 15, 2002 memo submitted to the Board of Supervisors. We have prepared the attached schedule that shows estimates of the refunds to be recovered and continuing reductions from each aizencv. This was done to assist Board members and the officials of the impacted agencies in planniflo, for possible refunds that could be ordered by a court. This schedule now includes potential refunds for this year and for four previous years. The following schedule is a revision to the one published on the Auditor - Controller's website on January 16, 2003. The prior amount included Secured Annual bills with Supplemental events, which would overstate the refund amount. Please note that we have no immediate plans to escrow the funds — the schedule was produced only to measure potential impacts. The attached estimates are a rough order of magnitude, and category totals differ slightly from the amounts in my letter to Counsel De Mayo. Being a rough order of magnitude, the estimates will be subject to continuous refinement as we obtain more information on the scope of the case and have more time to prepare analyses of data in our tax system. However, they are reliable enough for decision - makers to begin planning for a possible reduction in secured taxes. It is not likely that any funds will be refunded until the case is reviewed by the appellate court. 7 Davi E. Sundstr m .Auditor- Controller DES:Ir (Two Percent Assessment Appeals Case Update/auditor) Attachment cc: County Treasurer John Moorlach County Assessor Webster Guillory County Chief Financial Officer Gary Burton Orange County City Managers Orange County Schools Superintendents and Chief Business Officers Orange County Special Districts { I POTENTIAL IMPACT OF 2% ASSESSMENT APPEALS CASE ON AGENCIES IN ORANGE COUNTY TAX REFUNDS FOR FISCAL YEARS 1998 -99 THROUGH 2002 -2003 AND FUTURE REDUCTION IN TAX BASE (ROUGH ORDER OF MAGNITUDE) FUTURE ALLOCATION OF REDUCTION IN AGENCY REFUNDS TAX BASE ANAHEIM CITY TOTAL 3,896,000 1,545,00( ALISO VIEJO CITY TOTAL 154,000 61,00( BREA CITY TOTAL 607,000 253,00( BUENA PARK CITY TOTAL 800,000 318,00( COSTA MESA CITY TOTAL 2,157,000 857,OOC CYPRESS CITY TOTAL 418,000 166,OOC DANA POINT CITY TOTAL 588.000 234,000 FOUNTAIN VALLEY CITY TOTAL 797,000 317,000 FULLERTON CITY TOTAL 1,988,000 790,000 GARDEN GROVE CITY TOTAL 1,399,000 559,000 HUNTINGTON BEACH CITY TOTAL 4,271,000 1,697,000 IRVINE CITY TOTAL 2,200,000 874,000 LA HABRA CITY TOTAL 796,000 316,000 LA PALMA CITY TOTAL 181,000 72,000 LAGUNA BEACH CITY TOTAL 2,254,000 911.000 LAGUNA HILLS CITY TOTAL 635,000 252,000 LAGUNA NIGUEL CITY TOTAL 301,000 120,000 LAGUNA WOODS CITY TOTAL 22,000 9,000 LAKE FOREST CITY TOTAL 776,000 302.900 LOS ALAMITOS CITY TOTAL 196,000 78,000 MISSION VIEJO CITY TOTAL 2,066,000 821,000 NEWPORT BEACH CITY TOTAL 5,709,000 2,269,000 ORANGE CITY TOTAL 1,958,000 778,000 PLACENTIA CITY TOTAL 742,00n 295,000 RANCHO SANTA MARGARITA CITY TOTAL 219,000 87,000 SAN CLEMENTE CITY TOTAL 1,530,000 608,000 SAN JUAN CAPISTRANO CITY TOTAL 774,000 315,000 r -I L--.j Page 1 of 7 r� Page 2 of 7 POTENTIAL IMPACT OF 2% ASSESSMENT APPEALS IN ORANGE COUNTY CASE ON AGENCIES TAX REFUNDS FOR FISCAL YEARS 1998 -99 THROUGH 2002 -2003 AND FUTURE REDUCTION IN TAX BASE (ROUGH ORDER OF MAGNITUDE) FUTURE ALLOCATION OF REDUCTION IN AGENCY REFUNDS TAX BASE SANTA ANA CITY TOTAL 3,094,000 1,230,000 SEAL BEACH CITY TOTAL 546,000 217,000 STANTON CITY TOTAL 174,000 69,000 TUSTIN CITY TOTAL 904,000 359,000 VILLA PARK CITY TOTAL 153,000 61,000 WESTMINSTER CITY TOTAL 376.000 149,000 YORBA LINDA CITY TOTAL 1,129,000 449.000 TOTAL CITIES 43,810,000 17,444,000 COUNTY GEN FUND & PUBLIC LIBRARY TOTA 26,446.000 10.510,000 COSTA MESA VEH PRKG DISTRICTS TOTAL 0 0 CYPRESS CITY LIGHTING DIST 2 TOTAL 90,000 36,000 GARDEN GROVE SPECIAL DISTRICTS TOTAL 236,000 94,000 IRVINE CITY -OC ST LTG MAINT DIST 10 TOTAL 233,000 93.000 LA PALMA MUNI LIGHTING DIST 1 TOTAL 7,000 3.000 LAGUNA BEACH ST LIGHTING DIST 1 TOTAL 71,000 28.000 LAGUNA NIGUEL CSD TOTAL 958,000 380.000 NEWPORT BEACH - BALBOA ST LTG DIST 50 TOTAL 5.000 2.000 SAN CLEMENTE ST LTG & LNDSCP DIST 1 TOTAL 86,000 34,000 STANTON MUNI LTG DIST TOTAL 36,000 14,000 WESTMINSTER MUNI LTG DIST TOTAL 110,000 44.000 YORBA LINDA MAINT DISTS TOTAL 65.000 26,000 CAPISTRANO VALLEY WTR DIST TOTAL 97.000 38.000 LAGUNA BEACH SUB. CO WATER DIST TOTAL 208,000 83,000 CYPRESS RECREATION & PARK DIST TOTAL 396,000 157,000 TOTAL CITY SUBSIDIARY SPECIAL DISTRICT 2,598,000 1 1,032,000 Page 2 of 7 • POTENTIAL IMPACT OF 2% ORANGE COUNTY APPEALS CASE ON AGENCIES TA X REFUNDS FOR FISCAL YEARS 1998 -99 THROUGH 2002 -2003 AND FUTURE REDUCTION IN TAX BASE (ROUGH ORDER OF MAGNITUDE) AGENCY SOUTH COAST WATER -CAPO BCH WTR 102 -ZN 6 TOTAL COSTA MESA SANITARY DIST TOTAL SOUTH COAST WATER -DANA POINT SANI D ZN3 TOTAL EAST ORANGE COUNTY WATER DIST TOTAL EL TORO WATER DIST TOTAL IRVINE RANCH WATER DIST TOTAL ROSSMOOR/LOS ALAMITOS SEWER DIST TOTAL IRWD -LOS ALISOS WATER DIST TOTAL MIDWAY CITY SANI DIST TOTAL MOULTON NIGUEL WATER DIST TOTAL ROSSMOOR CSD SPECIAL DIST TOTAL SANTA MARGARITA WATER DIST TOTAL EMERALD BAY COMMON. SERVICE DIST TOTAL SANTIAGO COUNTY WATER DIST TOTAL THREE ARCH BAY COMM SERV DIST TOTAL SOUTH COAST COUNTY WATER DIST TOTAL ORANGE COUNTY FIRE AUTHORITY TOTAI SURFSIDE COLONY COMM SERV DIST TOTAL ORANGE COUNTY WATER DIST TOTAI TRABUCO CANYON COUNTY WATER DIST TOTAI ORANGE CO TRANSIT DIST - OPERATING TOTP ALLOCATION OF REFUNDS 3a.oC 21.000 1 11.000 93,000 78,000 1.833,000 33,000 180,000 212,000 2,232,000 83,000 544,000 108,000 22,000 80,000 383,000 16,925,000 8,000 ,852,000 128,OOC L 1,079,00( 0 C SANITATION DIST TOTAL YORBA LINDA COUNTY WATER DIST TOTAL ELSINORE VALLEY MUNI WATER DIST WESTERN MUNI WATER DIST MUNI WATER DISTRICTS TOTAL METRO WATER TOTAL Page 3 of 7 6,479,00( 332,00 2,557,0( FUTURE REDUCTION IN TAX BASE 15.000 8.000 44.000 37,000 31,000 729,000 13,000 71,000 84,000 887.000 33,000 216,000 43,000 9,000 32,000 182.000 6.726,000 3,00C 736,00( 51,00( 429.00' 2,575,000 122,000 0 0' 0 0 0 0 0 1,020,000 ESTIMATED POTENTIAL IMPACT OF 2% ASSESSMENT APPEALS CASE ON AGENCIES IN ORANGE COUNTY TAX REFUNDS FOR FISCAL YEARS 1998 -99 THROUGH 2002 -2003 AND FUTURE REDUCTION IN TAX BASE (ROUGH ORDER OF MAGNITUDE) FUTURE ALLOCATION OF REDUCTION IN AGENCY REFUNDS TAX BASE BUENA PARK LIBRARY DIST TOTAL 213,000 85,000 PLACENTIA LIBRARY DIST TOTAL 186,000 74.000 CAPO BAY COMMUNITY SERVICE DIST TOTAL 55,000 22,000 SURFSIDE COLONY WTR PROTECTION TOTAL -1.000 1,000 SILVERADO- MODJESKA REC &PARK DIST TOTAL 5.000 2,000 O C VECTOR CONTROL DIST TOTAL 429,000 170,000 SUNSET BEACH SANI DIST TOTAL 33,000 13,000 O C CEMETARY DIST TOTAL 145,000 58,000 TOTAL INDEPENDENT SPECIAL DISTRICTS 36,481,000 14,521,000 O C FLOOD CONTROL DIST TOTAL 6,640,000 2,639,000 O C HARBORS BEACHES & PARKS DIST TOTAL 4,921,000 1,956,000 COUNTY SERVICE AREA #4 TOTAL 44,000 17,000 NORTH TUSTIN LDSCP & LTG ASMT TOTAL 47,000 19,000 COUNTY SERVICE AREA #13 TOTAL 0 0 COUNTY SERVICE AREA #20 TOTAL 1,000 0 COUNTY SERVICE AREA #22 TOTAL 2,000 1,000 TOTAL BOARD GOVERNED SPECIAL DISTRICTS 11,655,000 4,632,000 ANAHEIM ELEMENTARY GENERAL FUND TOTAL 6,525,000 2,593,000 BUENA PARK ELEMENTARY GEN FUND TOTAL 1,053.000 418,000 CENTRALIA ELEMENTARY GENERAL FUND TOTAL 1,269,000 504,000 CYPRESS ELEM GENERAL FUND TOTAL 1,373,01C0 5 -18.000 FOUNTAIN VALLEY ELEM GEN FUNDTOTAL 2,121,000 827,000 FULLERTON ELEMENTARY GENERAL FUND TOTAL 2,871,000 1,141,000 HUNTINGTON BEACH ELEMENTARY GEN FUND TOTAL 3,051,000 1,212,000 LA HABRA ELEM GENERAL FUND TOTAL 1,167,000 464,000 LOWELL JOINT ELEM GENERAL FUND TOTAL 435,000 173,000 MAGNOLIA ELEMENTARY GENERAL FUND TOTAL 874,000 347,000 OCEAN VIEW ELEMENTARY GENERAL FUND TOTAL 2,849,000 1,132,000 0 Page 4 of 7 Page 5 of 7 POTENTIAL IMPACT OF 2% ASSESSMENT APPEALS CASE ON AGENCIES IN ORANGE COUNTY TAX REFUNDS FOR FISCAL YEARS 1998 -99 THROUGH 2002 -2003 AND FUTURE REDUCTION IN TAX BASE (ROUGH ORDER OF MAGNITUDE) FUTURE ALLOCATION OF REDUCTION IN AGENCY REFUNDS TAX BASE SAVANNA ELEMENTARY GENERAL FUND TOTAL 530,000 211,000 WESTMINSTER ELEM GENERAL FUND TOTAL 1,626.000 646,000 ANAHEIM HIGH GENERAL FUND TOTAL 6,046,000 2,403,000 FULLERTON HIGH GENERAL FUND TOTAL 4,237,000 1,684.000 HUNTINGTON BEACH HIGH TOTAL 7.817,000 3,119.000 BREA OLINDA UNIFIED GENERAL FUND TOTAL 1,575,000 626.000 CAPISTRANO UNIFIED GENERAL FUND TOTAL 22,980,000 9,133,000 GARDEN GROVE UNIFIED GENERAL FUND TOTAL 7,293,000 2,898,000 IRVINE UNIFIED GENERAL FUND TOTAL 11,938,000 4,744,000 LAGUNA BEACH UNIFIED GENERAL FUND TOTAL 2,770,000 1,101,000 LOS ALAMITOS UNIFIED GENERAL FUND TOTAL 2,792,000 1,109,000 NEWPORT -MESA UNIFIED GENERAL FUND TOTAL 16,794,000 6,674,000 ORANGE UNIFIED GENERAL FUND TOTAL PLACENTIA YORBA LINDA UNIF GEN FUND TOTAL 12,446,000 6,616,000 4,946,000 2,629,000 PLACENTIA YORBA LINDA UNIF GEN -FUNS TOTAL 425,000 169,000 SADDLEBACK VALLEY UNIF GEN FUND TOTAL 14,117,000 5,610,000 SANTA ANA UNIFIED TOTAL 8,408,000 3,342.000 TUSTIN UNIFIED GENERAL FUND TOTAL 7,877,000 3,130,000 COAST COMM COLLEGE TOTAL 8.721,000 3.466,000 NORTH OC COMM COLLEGE TOTAL 5.777,000 2,296.000 RANCHO SANTIAGO COMM COLL TOTAL 4,214,000 1,675,000 SOUTH ORANGE CO COMM COLL TOTAL 13.975,000 5,554,000 ORANGE CO DEPT OF EDUCATION TOTAL 7,069,000 2,809,000 EDUCATIONAL REVENUE AUGMENTATION FUND 61,458.000 24,424.000 261,124,000 103,757,000 TOTAL SCHOOL DISTRICTS w/ ERAF ANAHEIM ELEM 2002 BOND #2002 524,000 176,000 BUENA PARK ELEM 1998 BOND #1999A 53,000 23,000 BUENA PARK ELEM 1998 BOND #2000A 9,000 4,000 BUENA PARK ELEM 1998 BOND #2001A 15,000 6,000 FULLERTON ELEM SCH -2002 BOND SR #2002A 249,000 106,000 Page 5 of 7 • Anaheim CRA TOTAL 2,558,000 POTENTIAL IMPACT OF 2% ASSESSMENT APPEALS CASE ON AGENCIES Brea CRA TOTAL IN ORANGE COUNTY • TAX REFUNDS FOR FISCAL YEARS 1998 -99 THROUGH 2002 -2003 663,000 AND FUTURE REDUCTION IN TAX BASE Costa Mesa CRA TOTAL (ROUGH ORDER OF MAGNITUDE) 77,000 Cypress CRA TOTAL 711,000 FUTURE Fountain Valley CRA TOTAL 558,000 ALLOCATION OF REDUCTION IN 1,639,000 AGENCY REFUNDS TAX BASE 1,054,000 Huntington Beach CRA TOTAL 728,000 271,000 La Habra CRA TOTAL HUNTINGTON BEACH ELEM 2002 BOND #2002 151,000 78,000 LA HABRA EL SCH -2000 BOND SR #2000A 53,000 23,000 LA HABRA EL SCH -2000 BOND SR #2001A 18,000 8,000 MAGNOLIA SCH DIST -2000 BOND SR2000A 40,000 18,000 MAGNOLIA SCH DIST -2000 BOND SR2001B 35,000 16,000 NORTH OC COMM COLL 2002 BOND #2002 1,246,000 519,000 SANTA ANA UNIF SCH -1999 BOND SR2002A 384,000 182,000 CAPISTRANO UNIF -ID #1 1999 BOND 2002C 187,000 71,000 CAPISTRANO UNIF -ID #1 1999 BOND 2001 285,000 109,000 FULLERTON HIGH SCH -2002 BOND #2002 351,000 151,000 ANAHEIM HIGH 2002 BOND 2002A 763,000 300,000 LAGUNA BEACH UNIF 2001 BOND SER 2001 296,000 135,000 NEWPORT MESA UNIF SCH 2000 BOND 2001 307,000 130,000 PLACENTIA -YORBA LINDA UNIF 2002 BOND #A 653,000 279,000 CAPISTRANO UNIF -ID #1 1999 BOND 2000 122,000 47,000 SANTA ANA UNIF SCH -1999 BOND SR2000 422,000 201,000 IRVINE UNIF- SERIES H BOND FUND 0 0 BREA OLINDA UNIF -1999 BOND SR 1999A 156,000 66.000 6,319,000 2,648,000 TOTAL SCHOOL BOND • Anaheim CRA TOTAL 2,558,000 1,491,000 Brea CRA TOTAL 2,669,000 1,293,000 Buena Park CRA TOTAL 663,000 303,000 Costa Mesa CRA TOTAL 202,000 77,000 Cypress CRA TOTAL 711,000 277,000 Fountain Valley CRA TOTAL 558,000 206,000 Fullerton CRA TOTAL 1,639,000 615,000 Garden Grove CRA TOTAL 1,681,000 1,054,000 Huntington Beach CRA TOTAL 728,000 271,000 La Habra CRA TOTAL 170,000 81,000 Page 6 of 7 • ESTIMATED I POTENTIAL IMPACT OF 2% ASSESSMENT APPEALS CASE ON AGENCIES IN ORANGE COUNTY TAX REFUNDS FOR FISCAL YEARS 1998 -99 THROUGH 2002 -2003 AND FUTURE REDUCTION IN TAX BASE (ROUGH ORDER OF MAGNITUDE) FUTURE ALLOCATION OF REDUCTION IN AGENCY REFUNDS TAX BASE La Palma CRA TOTAL 276,000 110,000 Lake Forest CRA TOTAL 0 0 Mission Viejo CRA TOTAL 565,000 456,000 Orange CRA TOTAL 2,522,000 505,000 Placentia CRA TOTAL 215,000 87,000 San Clemente CRA TOTAL 116,000 46,000 San Juan Capistrano CRA TOTAL 446,000 381,000 Santa Ana CRA TOTAL 3,374,000 1,990,000 Seal Beach CRA TOTAL 146,000 52,000 Stanton CRA TOTAL 600,000 246,000 Tustin CRA TOTAL 891,000 336,000 Westminster CRA TOTAL 1,295,000 507,000 Yorba Linda CRA TOTAL 3,537,000 1,299,000 OC RDA Santa Ana Heights TOTAL 789,000 290,000 Orange Co. RDA ND &P TOTAL 1,302,000 533,000 TOTAL COMM REDEVELOPMENT AGENCIES 27,653,000 12,506,000 GRAND TOTAL 416,086,000 167,050,000 Page 7 of 7 Other Potential Impacts • Robert Pool v. Orange County (2% Property Assessment Appeal) • Appeal of practice of "recapturing" • 2% limit required under Prop. 13 • Declared unconstitutional in Superior Court • Class action status granted • Now on appeal • Significant Impacts, $2.2m first year, $857k each year thereafter v , MARKET VALUE . . ....... . $255,000 PROP. 13 LIMIT $245,000 TAXAOLE VALUE M ARKET VALUE PROP. 13 LIMIT &nnn Ann TAXABLE VALUE M Aft KfT VALUE $2W,WO TAXABLE VALUE 61 AA XET VALUE $230,000 0, A R KET VALUE MARKET VALUE ♦"-1281,541 PROP.13 .......... PROP. 13 LIM IT I- - - MARKET VALUE v PROP. 13 LIMIT -- PROP. 8 TAXABLE VALUE MP03 -063 COSTA MESA SANITARY DISTRICT DEPARTMENT OF FINANCE _ INTEROFFICE MEMORANDUM DIRECTOR MARC R. PUCKETT OF FINANCE TO: SANITARY DISTRICT BOARD OF DIRECTORS FROM: MARC R. PUCKETT, DIRECTOR OF FINANCE DATE: FEBRUARY 5, 2003 SUBJECT: MILEAGE REIMBURSEMENT RATE It was requested that I review the mileage reimbursement rate for board members who use their personal vehicle while conducting District business. It is my understanding that this request was a result of an inquiry by a board member. 3tO The current mileage reimbursement rate for board members is 27.5 cents per mile. If the business travel is to a conference where air passage is an option, then the mileage reimbursement rate is limited to the lesser of the cost of the airfare or reimbursement based upon actual miles driven. The current Internal Revenue Code (IRC) standard mileage rate to figure the deductible cost of operating your personal vehicle for business purposes is344 cents per mile. A copy of relevant sections of the IRC have been attached for informational purposes. The difference of 9 cents per mile would normally be deductible as an unreimbursed employee business expense on form 2106. Pursuant to Section 3.03.060 of the Sanitary Districts' Operations Code, the District has adopted and ratified the City of Costa Mesa's policies, personnel rules and provisions regarding benefits and compensation as its own. I would recommend that if it is the Board's desire to increase its mileage reimbursement rate, the Board should consider adopting its own policy setting the mileage reimbursement rate at which Board members choose to be reimbursed. If it is the Board's desire to establish a separate policy or amend an existing policy for this purpose, I would request that the Board direct either the General Counsel or myself to prepare such a policy for consideration by the Board at its next regular board meeting. Such a policy could be tied to the IRC standard mileage reimbursement rate then in effect. If you have any further questions in regards to this matter, feel free to contact me at your convenience. • MAW R. PUCKETT Director of Finance Attachments • Departmen Department of the i'reasury Internal Revenue Service C] Publication 4613 Cat..-No. 11081L For use in preparing 2002 Returns Contents Important Changes ................ 1 Important Reminders .............. 2 Introduction ..................... 2 1. Travel ....................... 3 Tax Horne .................... 3 Temporary Assignment or Job ...... 4 What Travel Expenses Are 16 Deductible? ................ 4 'deals .................... 5 Travel in the United States ...... 6 Travei Outside the United States ................. 7 Luxury Water Travel .......... 8 Conventions ............... 9 2. Entertainment .................. 9 What Entertainment Expenses 33 Are Deductible? ............. 10 Directly - Related Test ......... 11 Associated Test ............. 11 50% Limit ....................12 Exceptions to the 50% Limit ..... 13 3. Gifts ........................ 13 4. Transportation ................. 13 Car Expenses ................. 15 Standard Mileage Rate ........ 15 Actual Liar Exoenses ......... 16 Leasing a Car .............. 23 Disposition of a Car ............. 23 5. Recordkeeping ................. 24 How To Prove Expenses .......... 24 A lhat Are Adequate Records? .............. 24 Alhat If I Have Incomplete 27 Records? ..............25 27 Separating and Combining 30 Expenses ..............26 How Long To Keep ..... 31 Records and Receipts ...... 26 xamo1:3s of Records ......... 26 6. How To Report ................. 26 Where To Report ............... 26 Vehicle Provided by Your Employer .............. 27 Reinrbursentents ............... 27 Accountable Plants ........... 27 - Nonaccountable Plans ........ 30 Rules for Independent Contractors and Clients ..... 31 Completing Forms 2106 and 2106 —EZ ................. 31 Special Rules .............. 32 Illustrated Examples .......... 33 7. How To Get Tax Help ............ 39 Appendices ..................... 40 Index .......................... 50 Important Changes Standard mileage rate. The standard mile- age rate for the cost of operating your car in 2002' is 361,12 cents a mile for all business miles. Car expenses and use of the standard mile- age rate arc explainer,' in chapter 4. •Special depreciation allowance. Generally, new cars bought and placed in service in 2002 qualify for a special depreciation allowance. The special ailowance is a depreciation deduction equal to 30% of the adjusted basis of the car. The special depreciation allowance can be claimed for cars used more than 50% in a quaii- fied business use. See Speciar' Depreciation AF lowance under Actuai Car Expenses in chapter 4. Depreciation limits on cars. If you claim the special depreciation aliowance, the limit on the 2002 depreciation deduction for a car (including any section 179 deduction.) is increased to $7,660. For cars that do not qualify for (or for which you choose not to claim) the special de- preciation allowance, the limit remains $3.080. See Depreciation Limils under Actual Car Ex- panses en chapter 4. Exception for electric cars. If you claim the ;special depreciation allowance for an electric car, the limit or. the 2002 depreciation deduction (including any section 179 deduction) is 'In- creased to $22,980. For electric cars that do not qualify for (or for which you choose not to claim) the special depreciation allowance, the limit is $9,190. See Exceptions for clean -fuel cars under Depreciation Limits in chapter 4. Standard meal allowance. The standard meal allowance (also referred to as the limit on meals and incidental expenses (Mt &IE rate)) for most small iocalities in the United States is $110 a day from Januaiy 1. 2002, through September 30, 2002, and $34 a day from October 1, 2002, through December 31, 2002. However, the stan- dard meal allowance is higher for most major cities and many_ other localities in the continental United States. See Publication 1542, Per Diem Rates. These rates (ailowances!limetsp are aiso listed in Appendix A of Chapter 41, Part 301 of the Code of Federal RegUatiors. If you have a computer, you can find there on the Internet at www.policyworks.govlperdiem. Click on "2002 L'omestic Per Diem Rates" for the period January 1, 2002, through September 30. 2002, and on '2003 Domestic Per Diem Rates" for the period October 1, 2002, through December 31, 2002. Use of the standard meal aliowance is explained in chapter 1. Important Reminders Claiming the special depreciation allowance for 2001. If you feted your 2001 calendar year return before June 1, 2002, and did not claim: the new special depreciation aliowance for a quali- fied car, you can claim it by filing an amended return on Form 10 40X, Amended U.S. individual lneaxne Tax Refurn, by April 15, 2003. At the top of the Forrn 1040X, print'Filed pursuant to Rev - enue Procedure 2002 -31" If you are an em- ployee, attach Form 2106, Employee Business Expenses. If you are self - empioyed, attach Foram 4562, Depreciation and Amortization. Or, you can claim the special depreciation allowance by filing Form 3115, Appiicaticr, for Change in Accounting rblelhod, with your 2002 return. For details, see Revenue Procedure 2032 -33. Page 2 Meal expenses when subject to "hours of service" limits. Generally, you can deduct only 50% of your business- related meal ex- penses white travalina away from your tax home for business purposes. You can deduct a higher Percentage if the meals take place during or nc;dent to any period subject to the Department of Transportation's "hours of service" limits. (These limits apply to certain workers who are under certain federal regulations.) The Percent.- age is 65%. for 2002. Business meal expenses are covered in chapter 1. Limits that apply to employee deductions. If you are an erpioyee. deduct your work -re- iated expenses discussed in this publication: as a miscellaneous itemized deduction on Sched- ule .A (Form 1040). Generally, the amount of miscellaneous eternized deductions you can de- duct is limited to the amount that is more than 2% of your adjusted gross income. It may be further limited if your adjusted gross income is snore ttian $137,300 ($63,650 if you are married filing separately). How to report your expenses is covered in chapter 6. Photographs of missing children. Tne Inter- nal Revenue Service is a proud partner with the National Center for Missing and Exploited Chil- dren. Photographs of missing children seter; :3d by the Center may appear in this publication on Pages that would otherwise be blank. You can Help bring these children home by looking at the ,photographs and calling 1- 800 — THE —LOST (1- 800 - 843 -5678) if you recognize a child. Introduction You may be able to deduct the ordinary arid necessary business - related expenses you have for: • Travel, • Ertertairanent, • Gifts, or • Transportation. An ordinary expense is one that is common and accepted in your field of trade, business, or profession. A necessary expense is one that is Helpful and appropriate for your business. An expense does not have to be required to be considered necessary. This publication explains what expenses are deductible, how to report there on your return, what records you need to prove your expenses, and how to treat any expense reimbursements you may receive. Who should use this publication. You should read this publication if you are an em. ployee or a sore proprietor who has business -re- Wed travel, entertainment. gi", or transportation expenses. Users of employer - provided vehicles. If an employer - provided vehirte was available for your use, you received a fringe benefit. Gener- al y, yourempioyer must ir:clude the value of the use or availability in your income as pay. How- .ever, there are exceptions if the use of the veni- cie qualities as a working condition fringe benefit (such as the use of a ceuali`ed norpersoral use vehicle). A working condition fringe benefit is an property or servire provided to you by your em- ployer for which you could deduct the cost as an employee business expense :: you had paid for it. A qualified nonpersonal use vehicle is one that is not likely to be used more than minimally for personal purposes because of its design. For information on how to report your car experises that your employer did not provide or reimburse you for (such as when you pay for gas and maintenance for a car your employer pro- vides), see Vehicle Provided L?y Your Employer in chapter 6. Who does not need to use this publication. Other businesses (such as partnerships, corpo- rations, and trusts) and employers who reiin- burse their employees for business expenses should refer to their tax form instructions and chapter 13 of Publication 535, Business Ex- penses, for information or: deducting travel, meals. entertainment, and transportation ex. penses. If you are an empioyee, you will not need to read this publication if all of the following are true. 1) You fuliy accounted to your employer for your work - related expenses. 21 You received full reimbursement for your expenses. 3) Your employer required you to return any excess reimbursement and you did so. 4) Box 12 of your Form W -2, Wage an +.f Tax Statement, shows no amount with a code L. If you meet these four Conditions, there is no need to show the expenses or the reimburse- ments on your return. If you weuEd like more information on reimbursements arid accounting to your employer, see chapter 6. if you meet these conditions and your El ernplover included reimbursements on your Firm W -2 in error, ask your em- ployarfor a correc!ed Form N -2. Volunteers. If you perform services as a volunteer worker for a qualified charity. you may be able to deduct some of your costs as a charitable contribution. See Out -of- Pocket Ex- penses in Giving Services in Publication 526, Charitable Contributions, for information on the expenses you car: deduct. Comments and suggestions. We welcome your comments about this publication and your suggestions for future editions. You can e -mail us while visiting our web site at www.irs.gov. You can write to us at the following address: Internal Revenue Service Tax Forms and Publications W:CAR:tOP:FP 1111 Constitution Ave. NW Washington, DC 20224 We respond to many letters by telephone. Ttlerefore, it would be helpful if you would in- clude your daytime phone number, including the area code, ir: your correspondence. Useful Items You may want to see: Publication G 225 Farmer's Tar. Guide p 529 Miscellaneous Deductions 535 Business Expenses * 946 How To Depreciate Property tit 1542 Per Diem Rates Form (and Instructions) G Schedule A (Form 1040) itemized Deductions ':j Schedule C (Form 1040) Profit or Loss From Business %1 Schedule C —EZ (Form 1040) Net Prott From Business ❑ Schedule F (Form 1040) Profit or Loss From Farming i t 2106 Employee Business Expenses Q 2106 -EZ Unreimbursed Employee Business Expenses Li 4562 Depreciation and Amortization See chapter 71, How To Get Tax Help, for information about getting these publications and forms. 01. L J If you temporarily travel away from your tax home, you can use this chapter to determine if you have deductible travel expenses. This chap- ter defines "travel expenses, "'lax home. "''tem - porary assignment," and the "standard metal allowance." It also discusses the miles for travel inside and outside the United States, luxury wafer travel, and deductible convention ex- penses. Travel expenses defined. For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. An ordinary expense is one that's common and accepted in your field of trade, business, or profession:. A necessary expense is one that is helpful and appropriate for your business. An expense does :lot have to be required to be considered necessary. You will find examples of deductible travel expenses in Table 1, later. Traveling away from home. You are travel- ing away from home if: 1) Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and 2) You need to sleep or rest to rneet the de- mands of your work while away from home. This rest requirement is not satisfied by merely upping ir• your car. You do not have to be away from your tax home for a whole ray or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. Example 1. You are a railroad conductor. You leave your horse terminal on a regularly scheduled round -trip I' in between two cities and return home 16 hours later. During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. You are considered to be away From home. Example 2. You are a trick driver. You leave your terminal and return to it later the same day. You get an hour oft at your turn- around point to eat. Because you are rot off to get necessary seep and the brief time off is not an adequate rest period, you are not traveling away from home. Members of the Armed Forces. If you are a member of the U.S. Armed Forces on a perma- nent duty assignment overseas, you are not traveling away fray. hone. You cannot deduct your expenses for meals and lodging. You can- riot deduct these expenses even if you have to .maintain a horse in the United States for your family members who are riot allowed to accorrn- pany you overseas. If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521. Moving Expenses. A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home aboard ship for travel expense purposes. Tax Nome To determine whether you are traveling away from home, you must fiat determine the location: of your tax horse. Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It in- cludes the entire city or general area in which your business or work is located. if you have more than one regular place of nosiness, your tax home is your main place of business. See Main place of business or work, later. if you do not have a regular or a main place of business because of the .attire of your work. then your tax home may be the place where you regularly live. See No main place of business or work, later. if you do rot have a regular place of business or post of duty and there is no place where you regularly lire, you are considered a transient (art itinerant) and your tax home is wherever you work. As a transient, you cannot claim a travel expense deduction because you are :never considered to be traveling away frorn home. Main place of business or work. If you have more than one place of work, consider the fol- iowirg when determining which one is your main mace of business or work. 1) The total time you ordinarily spend in each place. 21 The level of your business activity in each place. 3) '0 hether your income frorn each place is significant or insignificant. Example. You live in Cincinnati where you have a seasonal job for 8 months each year and earn $25000. You work the other 4 months in Miami, also at a seasonal job. and earn $9.000. Cincinnati is your main: place of work because you spend most of your time there and earn most of your income there. No main place of business or work. You may have a tax home even if you do not have a regular or main place of work. Your *.ax horne may be the tome where you regularly :ive. Factors used to determine tax home. If you do not have a regular or main place of business or wok, use the following three factors to determine where your tax home is. 1) You perform part of your busireSS in the area of your main home and use that home for lodging whip; doing business in the area. 2) You have living expenses at your main home that you duplicate because your business requires you to be away from that home. 31 You have not abandoned the area in which both your historical place of lodging and your ctaimcd main home are located; you have a member or members of your family living at your main home: or you often us:; that home for lodging. If you satisfy ati three factors, your tax horse is the home where you regularly live. If you satisfy only two factors. you may have a tax home depending on all the facts and circurn- stances. if you satisfy only one factor, you are a transient your tax home is wherever you work and you cannot deduct travel expenses. Example 1. You are single and i've in Bos- ton in an apartment VOL' rent. You have worked for your employer in Boston for a number of years. Your employer enrolls you in a 12 -month executive training program. You do not expect to return to ware in Boston after you complete your training. During your training, you do not do any work in Boston:. Instead, you receive classroom and On-the-job training throughout the United States. You :Deep your apartment in Boston and return to it frequently. You use your apartment to conduct your personal business. You also keep up your community contaets in Boston. When you corn plete your training, you are transferred to Los Angeles. You do not satisfy factor (1) because you did not work in Boston. You satisfy factor (2) be- cause you had duplicate living expenses. You also satisfy factor (3) because you did not aban- don your apartn-:ent in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. You have a tax home in Boston. Example Z. You are an outside salesperson with a sales territory covering several states. Your employer's main office is in Newark. but you do not conduct any business there. Your work assignments are temporary, and you have no way of knowing where your future assign- Chapter 1 Travel Page 3 rnents will be located. You have a room in your married sister's horse in Dayton. You stay there for one or two weekends a year, but you do no • work in the area. You do not pay your sister for the use of the room. You do not satisfy any of the three factors lister'• earier. You are a transient acid have no tax home. Travel to family home. if you (and your fam- iiv) do rot live at your tax horne iorne (defined earlier), you cannot deduct the cost of traveling between your tax horne and your family home. You also cannot deduct the cost of rneals and lodging while at your tax home. See Example 9 that follows. If you are working ternporarily in the same city where you and your family live, you may be considered as traveling away from home. See Example 2, below. Example i. You are a truck driver and you and your family live iri Tucson. You are em- ployed by a trucking ft. l m that has its terminal in Phoenix. At the end of your long runs; you return to your home terminal in Phoenix and spend ore slight there before returning home. You cannot deduct any expenses you have for rneals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. This is because Phoenix is your tax horne. Example 2, Your family home is in Pitts- burgh, where you work 12 weeks a year. The rest of the year you work for the same employer in Baltimore. In Baltimore, you eat in restaurants and sleep in a rooming house. Your salary is the same whether you are in Pittsburgh or Balti- more. Because you spend most of your working time and earn most of vour salary in Baltimore, that city is your tax home. You cannot deduct any expenses you have for meals and lodging there. However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. You can deduct the cost of your round trip between Baltimore and Pittsburgh. You can also deduct your part of your family's living expenses for meals and lodgirg while you are living and work- ing in Pittsburgh. Temporary Assignment or Job You may regularly work at your tax home and also work at another location. It may not be practical to return to your tax horne frorn this other location at the end of each work day. Temporary assignment vs. indefinite assign- ment. If your assignment or job away from your main place of work is temporary, your tax horne does not change. You are considered to be away frorn: home for the whole period you are away from your main place of work. You can deduct your travel expenses if they otherwise qualify for deduction. Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for year or less. However, if your assignment or job is ina'efi- nite, the location: of the assignment or job be- comes your new tax horne arid you cannot deduct your travel expenses while there. An Page 4 Chapter 1 Travel assignment or job in a single location is consid- ered,• indefinite if it is realistically expected to last for more than one year, whether or not it actually fasts for more than one year. if your assignment is indefinite. you must nclude in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you ac- count to your employer for them. You may be able to deduct the cost of relocating to your new tax home as a moving expense. See Publication 521 for more information. Exception for federal crime investigations or prosecutions. if you are a federal entployee participating in a federal crime investigation or prosecution, you are not subject to the one -year rule. This means you may be able to deduct travel expenses even if you are away from your tax home for more than one year. For you to qualify, the Attorney General must certify that you are traveling: 1) For the federal government, 2) In a temporary duty status, and 3) To investigate or prosecute, or provide support services for the investigation or prosecution of, a federal crime. You can deduct your otherwise allowable; travel expenses throughout the period of certification. Determining temporary or indefinite. You must determine whether your assignment is temporary or indefinite when you start work. If you expect an assignment or job to last for one year or less, it is temporary unless there are facts and circumstances that indicate otherwise. An assignment or job that is initially temporary may become indefinite due to changed circum- stances. A series of assignments to the same location, all for short periods but that together cover a lorq period, may be considered an in- definite assionnient. The folio Mnc examples illustrate whether an issigrment or job Is tempcary or indefinite. Example Y. You are a construction worker. You live and regularly work in Los Angeles. You are a member of a trade union In Los Angeles that helps you get work in the Los Angeles area. beCaUSe of a shortage of work, you took a job on a construction protect in Fresno. YOUr job was scheduler,' to end in 8 rncrths. The job actually lasted 10 months. You realistically expected the lob in Fresno to last 8 months. The job actually did last less Ihan 1 vear. The job is temporary and your tax home is still in Los Angeles. Example 2. The facts are the same as in Example t, except that you realistically ex- pected the work in Fresno to last 18 months. The Job actually was completed in 10 months. Your job in Fresno is indefinite because you realistically expected the work to last longer than 1 year, even though it actually lasted less than 1 year. You cannot deduct any travel expenses you had in Fresno because Fresno became your tax home. Example 3. The facts are the same as in Example 1, except that. you realistically ex- pected the work in Fresno to last 9 months. After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months). Initially, you realistically expected the job in Fresno to last for only 9 months. However, due; to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for one year or less. You can only deduct your travel expenses for the first 8 months. You cannot deduct any travel expenses you had after that time because Fresno became your tax home when the job became indefinite. Going home on days off. If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. You cannot deduct the cost of your meals and lodg- ing there. However, you can deduct your "ravel expenses, including rneals and lodging, while traveling between your temporary place of work and your tar, horne. You can claim these ex- penses up to the arrount it would have cost you to stay at your temporary place of work. If you keep your hotel room during your visit horse, you can deduct the cost of your hotel room. In addition, you can deduct your ex- penses of returning home up to the amount you would have spent for meals had you stayer' at your temporary place of work. Probationary work period. if you take a job that requires you to move, with the understand- ing that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. You cannot deduct any of your expenses for meals and lodging during 'tie pro - bationary period. What Travel Expenses Are Deductible? Once you have determined that you are travel- ing away from your tax home, you can determine what travel expenses are deductible. You can deduct ordinary and necessary ex- penses you have when you travel away from home on business. The type of expense you can deduct depends on the facts and your circum- stances. TaNe 1 summarizes travel expenses you may be able to deduct. You may have other deductible travel expenses that are not covered there, depending on the facts and your circurn- stances. 13 'When you travel away front horne on business, you should keep records of all the expenses you have and any advances you receive from your employer. You can use a log, diary, notebook; or any other written record to keep track Of your expenses. The types of expenses you need to record, along with supporting documentation, are de- scribed in Table, 4 (see chapter 5). Separating costs. If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transpor- tation), you must allocate that expense between the cost of rneals and entertainment and the cost of o;.her services. You must have a reasonable basis for making this allocation. For example, you must allocate your expenses if a hotel irm- cludes one or more rneals in its room charge. is • Table 1. Travel Expenses You Can Deduct This chart summarizes expenses you can deduct when you travel away from home for business purposes. IF you have expenses for .... THEN you can deduct the cost of ...................... . Transportation Travel by airplane, train., bus, or car between your home and your business destination. If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. if you travel ship, see Luxury Water Travel and Cruise ships (under Conventions) for additional rules and limits. Taxi, commuter Fares for these and other types of transportation that take you bus, and airport between: limousine 1) The airport or station and your hotel, and 2) The hotel and the work location of your customers or ciients, your business meeting place; or your temporary work location. Baggage and Sending baggage and sample or display material between, your regular shipping and temporary work locations. Car Operating and maintaining your car when traveling away from home on business. You can deuct actual expenses or the standard mileage rate, as well as business - related tolls and parking. If you rent a car while away from home on business, you can deduct only the business -use portion of the expenses. Lodging and meals Your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Meals include arnounts spent for food, beverages, taxes, and related tips. See h4eals for additional rules and limits. Cleaning Dry cleaning and laundry. Telephone Business calls while on your business trip. This includes business cornrnurication by fax machine or other communication devices. Tips Tips you pay for any expenses in this chart. Other Other similar ordinary and necessary expenses related to your business travel. ' rhese expenses might include transportation to or from a business meal, public stenograaher's fees, computer rental fees, and operating and maintaining a house trailer. Travel expenses for another Individual. If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot de- duct his or her travel expenses. Employee. You can deduct the travel ex-- penses of someone who goes with you !f that person: 1) Is your employee, 21 Has a bona fide business purpose for the travel, and 3) Vklouid otherwise be aliowed to deduct the travel expenses. Business associate. If a business associ- ate travels with you and meets the conditions in (2) and (3) above, you can deduct the travel expenses you have for that person. A business associate is someone with whom you could rea- sonably expect to actively conduct business. A business associate can be a current or prospec- tive (iike!y to become) customer, client, supplier, employee, agent, partner, or professional advi- sor. Bona fide business purpose. A bona fide business purpose exists if you can prove a real •business purpose for the individual's presence. Incidental services, such as typing notes or as- sisting in entertaining customers. are not enough to make the expenses deductible. Example. Jerry drives to Chicago on busi- ness and takes his wife, Linda, with him. Linda is riot Jerry's employee. Linda Occasionally types notes, performs similar services, and accompa- nies Jerry to luncheons and dinners. The per- formance of these seices doles riot establish that her presence on the trip is necessary to the conduct of Jerry's business. Her expenses are not deductible. Jerry pays $115 a day for a double roorn. A single room costs S90 a day. He can deduct the total cost of driving his car to and from Chicago, but only $90 a day for his hotel room. if tie uses public transportation. he can deduct only his fare. Meals You can deduct the cost of meals in either of the following two situations. 4) It is necessary for you to stop for substan- tial sleep or rest to properly perform your duties whiie traveling away from home on business. 2) The meal is nusiness- related entertain- ment. Business- related entertainment is discusser,' in chapter 2. The following discussion deals only with meals that are not business- related enter - tainment. Lavish or extravagant. You cannot deduct expenses for meals that are lavish or extrava- gant. An expense is not considered lavish or extravagant if it is reasonable baser,' on the facts and circumstances. Expenses will not be disal- lowed merely because they are more than a fixed dollar amount or take place at deluxe res- taurants, hotels, nightclubs, or resorts. 50% limit on meals. You can figure your meals expense using either of the following tr.o methods. 11 Actual cost. 2) The standard meal allowance. Both of these methods are explained below. Sul, regardless of the rriethod you use, you generally can deduct only 50% of the unreirnbursed cost of your meats. If you are reimbursed for file cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountabie. if you are not reimbursed, the 50% firm" t applies whether the unreirnbursed meal expense is for business travel or business entertainment. Chapter 2 dis- cusses the 50% limit in more detail, and chapter 6 discusses accountable and nonaccountable plans. Actual Cost You can use the actual cost of your meals to figure the amount of your expense before reiri- bursenient and app!ication Of the 50% deduction limit. If you use this method, you inust keep records of your actual cost. Standard Meal Allowance Generally, you can use the 'standard meal at- lowance' method as an alternative to the actual cost method. It allows you to use a set amount for your daily meals and incidental expenses (M &1E), instead of keeping records of your ac- tual costs. The set am -ount varies depending On where and when you travel. In this publication, "standard meat allowance" refers to the federal rate for [tit &IL -, discussed later under Amount of standard rneai a;lowance. If you use the stan- dard rneat allowance, you still must keep rec- ords to prove the time, place, and business purpose of your travel. See the recorokeeping rules for travel in chapter 5. Incidental expenses. These include, but are not limited to, your costs for the following items. 1) Laundry, cleaning and pressing of clothing. (These expenses are not rxinsidered inci- dental expenses after December 31, 2'002.) 2) Fees and tips for persons who provide services, such as porters and baggage carriers. Incidental expenses do not include taxicab fares, lodging taxes, or the costs of telegrzrns or telept one calls. Incidental expenses only method. Effective after September 30, 2002, you can use an op- tional niemod (instead of actual cost) for deduct• ing incidental expenses only. The amount of the deducaion is $2 per day for incidental expenses paid or incurred for travel away from horse if you did not pay or incur any meal expenses. This Chapter 1 Travel Page 5 n • method is subject to the proration rules for par- tial days. See 'raver for days you depart and return, later in this chapter. Federal employees should refer to Me Feclera! Travel Regulations at www.policyworks.gov /ftr for changes &fleeting their claims for reinaburse- menf of these expenses. 50% limit may apply. If you use the standard areal allowance rnethod for meal expenses and you are riot reimbursed or you are reimbursed under nonaccountable plan, you cart generally deduct only 50% of the standard meal allow- ance. If you are reimbursed under an accounta- ble pian and you are deducting amounts that are more than your reimburses- rents, you can de- duct only 50°1 of the excess amount. The 50% limit is discussed in n.or a detail in chapter 2, and accountable and r:onaccountabte plants are dis- cussed in Chapter 6. 7'here is no or.•lional standard lodging amount similar to the standard meal allowance. Your allowable; lodging ex- pense deduction is your actual cost. Who can use the standard meal allowance. You can use the standard meal allowance whether you are art ernployee or self- erployed, and whether or not you are reimbursed for your traveling expenses. Who cannot use the standard meal allow- ance. You cannot use the standard meal al- lowance if you are reiated to your employer as defined next. Related to employer. You are related to your employer if- 1) Your employer is your brother or sister, half brother or half sister, spouse, onces. tor, or lineal descendant, 2'r Your employer is a corporation in which You own, directly or indirectly. more than 1110% in value of the outstanding stock. or 3) Certain relationships (such as grantor, fi -• duciary, or beneficiary) exist between you, a trust, and your employer. You may be considered to indirectly own stock, for purposes of (2), if you have an interest in a corporation, partnership, estate, or trust that owns the stock or if a member of your family or your partner owns the stock. Use of the standard meal allowance for other travel. You car use the standard meal Mow - ance to figure yot:r meal expenses when you travel in connection with investment and other income- producing propery. You can also use it to figure your meal expenses when you travel for qualifying educational purposes. You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. Amount of standard meal allowance. The standard meal allowance is the federal MWE rate. For travel in 2002, the rate for most small localities in the United States is $30 a day from January 1, 2002, through September 30, 2002, and $34 a day from October 1, 2002, through December 31, 2002. Most major cities and many other localities in the United States are designated as hich -cost Page 6 Chapter 1 Travel areas. qualifying for higher standard meal al.. lowances. These rates are $34,$38,$42, or $46 a clay for the first 9 months of 2002 and $38.$42, $46, or $50 a day for the last 3 months of 2002. These rates are listed in Publication 1542. You can also find this information or the irdemet at www.policyworks.gov/ perdiem. Click on "2002 Domestic Per Diem Rates' for the period January 1, 2002 — September 30, 2002, and on '2003 Domestic Per Diern Rates" for the period October 1, 2002 — December 31, 2002. if you travel to more than one location in one day, use the rate In effect for the area where you stop for sleep or rest. If you work in the transpor- tation industry, however, see Special rate for transportation workers, later. Standard meal allowance forareas outside the continental United States. The standard meal allowance rates do riot apply to travel in Alaska, Hawaii, or any other locations outside 'tie continental United States. The federal per diem rates for these locations are published monthly in the Maximum Travel Per Diem. Al- lowances for Foreign Areas. IfflYou can access foreign per diern rates at www.state.gov /i-n/alais /prdni. Your employer rnay have these rates ' available, or you can purchase she publication from the: Superintendent of Documents U.S. Government Printing Office P.O. Box 371954 Pittsburgh, PP. 15250 -7954 ©You can also order it by calling the Government Printing Office at 1- 202- 512 -1300 (not a toil -free number). Special rate for transportation workers. You can use a special standard stem allowance if you work in the transportation industry. You are in the transportation industry if your wore: 1) Directly involves moving people or goods by airplane, barge, bus, ship, train, or tack, and 2) Regularly requires you to travel away from home and, during any single trip, usualy involves travel to areas eligible for dfferert standard meal allowance rates. If this applies to you, you car.. claim a standard meal allowance of $38 a day ($42 for travel outside the continental United States) for Janu- ary 1, 20.02, through September 30, 2002, and $40 a day ($45 for travel outside the continental United Slates) for October 1, 2002, through De- cember 31, 20,12. Using the special rate for transportation workers eliminates the need for you to deter- mine the standard meal allowance for every area where you stop for s':eep or rest. If you choose to use the special rate for any trip, you must use the special rate (and not use the regu- lar standard meal allowance rates; for all trips you take that year. Travel for days you depart and return. For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). You can do so by one of two methods. • Method 1: You can claim ?r< of the stan- dard meat allowance. • Method 2: You an prorate using any method that you consistently apply and that is In accordance with reasonable busi- ness practice. Example. ,ten is employed in New Orleans as a convention planner. In March, her employer seat her on a 3 -day trip to Washington, Dc, to attend a planning seminar. She left her home in New Orleans at 10 a.m. on 4Vednesray and arrived in Washington. DC, at 5:30 p.m. After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p.m. Jen's employer .gave her a flat amount to cover her expenses and included it with her wages. Under Method 1, Jeri can claim 2'!2 days of the standard meal allowance for 'Washington, DC: u; of the daily rate for Wednesday and Friday ;the days she departed and returned), and the full daily rate for Thursday. Ender Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business prac- tice. For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method f and be Gaited to only 21h, days. Travel in the United States The follovwing discussion applies to travel in the United Stases. For this purpose, the United States includes the 50 states and the District of Columbia. The treatment of your travel ex- penses depends on how much of your trip was business related and on how much of your trip occurred within the United States. See Part of Trip Outside the United States, later. Trip Primarily for Business You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while, at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business - related travel expenses. These ex- penses include the travel costs of getting to and from your business destination: and any business - elated expenses at your business destinati0 :1. Example. You work in Atlanta and take a business trip to New Orleans. On your way home, you stop in tAobile to visit your parents. You spend $630 for the 9 days you are away front horse for travel, meals, lodging, and other travel expenses. if you had not stopped in fvto- bile; you would have: boon gore only 6 days, and your total Cost wnuld have been $550. You can deduct $500 for your trip, including the cost of round -trip transportation to and from New Orle- ans. The deduction; for your meals is subject to the 50% limit on meals mentioned earlier. Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have white at your destination that are directiv related to your busi- ness. A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. The scheduling of ind- dentat business activities during a trip, such as viewing videotapes or attending lectures delaiirg with general subjects, will not change what is really a vacation into a business trip. Part of Trip Outside the United States if par: of your trip is outside the United States, use the rules described later in this chapter under Travel Outside the United States for that part of the trip. For the part of your trip that is inside the United States, use the rules for travel in the United States. Travel outside the United States does riot include travel from one point in the United States to another point in the United States. The following discussion can help you determine whether your trip was entirely within the United States. Public transportation. If you travel by public transportation. any place in the United States where that vehicle makes a scheduled stop is a point in the United States. Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the united States. Example. You fly from New York to Puerto Rico with a scheduled stop in Miami. You return to New York nonstop. The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. Secau se there are no scheduled stops between Puerto Rico and Now York. all of the return trip is outside the United States. Private car. Travel by private car In the United States is travel between points in the United States. ever. though you are on your way to a destination outside the United States. Example. You travel by car from Deriver to Mexico City and return. Your travel from Denver to the border and from the border back to Den- ver is travel in the United States• and the rules in this section apply. The rules under Travel Outside the United States apply to your trip front the border to Mexico City and back to the border. Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your oesb cation may be limited. For this purpose, the United States includes the 5G states and the District of Colton— bin. How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business re-- lated. Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of get- ting to and from your business destination if your trip is entirely for business or considered entirely for business. Travel entirety for business. If you travel outside the United States and you spend the entire time on business activities, YOU can de- duct all of your travel expenses. Travel considered entirety for business. Ever: if you did not spend your entire tirrne on business activities, your trip is considered en- tirely for business if you meet at leas', one of the following four exceptions. Exception 9 — No substantial control. Your trip is considered entirely for business if you did riot have substantial control over arrang- ing the trip. The fact that you control the tiring of your trip does not, by itself, mean that you have substantial control over arranging your trip. You do no: have substantial control over your trip if you: 1) Are art employee who was reirnbursed or paid a travel expense allowance, 21 Are not related to your employer, and 3) Are not a managing executive. "Related to your employer" was defined ear- lier in this chapter under Standard Meal Allow- ance. A `managicg executive" is an employee who has the authority and responsibility, without be• !ng subject to the veto of another, to decide on the need for the business travel. A self- employed person: generally has sub- stantial control over arranging business trips. Exception 2 — Outside United States no more that) a week. Your trip is considered entirely for business if you were outside the United States for a week or less: combining business and nonbusiness activities. One week means seven consecutive days. in counting the days, do not count the day you leave the United States, but do count the day you return to the United States. Example. You traveled tc• Brussels primarily for business. You left Denver on Tuesday and flew to New York. Or Wednesday, you flew from New York to Brussels, arriving the next morning. On Thursday and Friday, you had business dis- cussions, and from Saturday until Tuesday, you were sightseeing. You flew back to New York, arriving Wednesday afternoon. On Thursday, you flew back to Denver. Although you were away from your home in Denver for more than a week, you were not outside the United States for more than a week. This is because the day you depart does not count as a day ou'>ide the Ur:lted States. You can deduct your cost of the round -trip flight between. Denver and Brussels. You can also deduct the cost of your stay in Brussels for Thursday and Ftiday while you conducted busi- ness. However, you cannot deduct the cost of your stay in Brussels from Saturday through Tuesday because those days were spent on nonbusiness activities. Exception 3 — Less than 25% of time on personal activities. Your trip is considered entirely for business;!'.'- 1) You were outside the United States for more than a week, and 2) You spent less than 25 °.0 of the total time you were. outside the United States on nonbusiness activities. For this purpose, court both the day your trip began and the day it ended. Example. You flew from Seattle to Tokyo, where you spent 14 days on business and 5 days on personal matters. You then flew back to Seattle. You spent one day flying in each direc- tion. Because only x72: Mess than 25 %) of your total time abroad was for nonbusiness activities. you can deduct as travel expenses what it would have cost you to make the trip if you had not engaged in any nonbusiness activity. The amount you can deduct is the cost of the round -trip plane fare and 16 days of meals (sub- ject to the 50 %u limit), lodging, avid other related expenses. Exception 4 — Vacation not a major con- sideration. Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, ever, it you have substantial control over arranging the trip. Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on other activities, you generally cannot deduct all of your travel expenses. You can only deduct the business portion of your cost of getting to and frorn your destination. You must allocate the costs between your business and other activities to determine your deductible amount. See Travel allocatior, rules, below. You do not have to allocate your travel TIP expenses if you meet orre of the tour exceptions listed earlier under Travel considered entirely for business. In those cases, you can deduct ti,e total cost of getting to and from your destination. Travel allocation rules. If your trip outside the United States was primarily for business, you must allocate your travel time on a day - today basis between business days and nonbusiness days. The days you depart from and return to the United States are both counted as days outside the United States. To figure the deductible amount of your round -trip travel expenses, use the foliowing fraction. The numerator (top number) is the total number of business days outside the United States. The denominator (bottom number) is the total number of cravel days outside the United States. Counting business days. Your business days include transportation days, days your presence was required, days you spent on busi- ness, and certain weekends and holidays. Transportation day. Count as a business day any day you spend traveling to or from a business destination. However, if because of a nonbusiness activity you do riot travel by a direct rouse, your business days are the days it would take you to travel a reasonably direct route to your business destination. Extra days for side Chapter 1 Travel Page 7 trips or nonbusiness activities cannot be counted as business days. Presence required. Count as a business day any day your presence is required at a pa'icular place for a specific business purpose. Count it as a business day ever if you spend Trost of the day on roribusiness activities. Day spent on business. if your principal activity during working hours is pursuit of your trade or business, count 'tie day as a business day. Also: count as a business day any day you arc prevented from working because of circum- stances beyond your control. Certain weekends and holidays. Count weekends, holidays, and other necessary standby days as business days if they fall be- tween business days. But if they follow your business meetings or activity and you rernain at your business destination: for nonbusiness or personal reasons, do riot count them as busi- ness days. Example ?. Your tax home is New York City. You travel to Quebec, where you have a business appointment on Friday. You have an- other appointment on the following Monday. Be- cause your presence was required on both Friday and Monday, they are business days. Because the weekend is between business days, Saturday and Sunday are counted as business days. This is true even though you use the weekend for sightseeing, visiting friends, or other nonbusiness activity. Example 2. if, in Example 1, you had no business in Quebec after Friday, but stayed until Monday before starting home, Saturday and Sunday would be nonbusiness days. Nonbusiness activity on the way to or from your business destination. If you stopped for a vacation or other nonbusiness activity ei- ther on the way from the United States to your business destination, or on Itie way back to the United States from your business destination, you must allocate part of your travel expenses to the nonbusiness activity. The part you must allocate is the arnount it would have cost you to travel between the point where travel outside the United States begins and your nonbusiness destination and a return to the point where travel outside the United States ends. You determine the nonbusiness portion of that expense by multiplying it by a fraction. The numerator of the fraction is the number of non- business days during your travel outside the United States and the denominator is the total number of days you spend outside the United States. Example. You live in New York. Qri May 4 you flew to Paris to attend a business confer- ence that began on May 5. The conference ended at noon on May 14. That everting you flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly horse to New York. The primary purpose for the trip was to attend the conference. If you had not stopped in Dublin, you wouid have arrived horse the everirg of May 14. You did not meet any of the exceptions that would allow you to consider your travel entirely for business. May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 Gays, are nonbusiness days. Page 8 Chapter i Travel You can deduct the cost of your meals (sub - ect to the 50% :imit)i. Icdging, and other business - related travel expenses while in Paris. You cannot deduct your expenses while to Dublin. You also cannot deduct 'i+s of what it mould have cost you to travel round -trip between New Yor* and Dublin. You paid $450 to fly from New York to Paris, $200 to fly from Paris to Dublin, and $500 to fly from Dublin back to New York. mound trip airfare from New York to Dublin would have been $850. You rgure the deductible part of your air travel expenses by subtracting 'l,a of the round -trip fare and other expenses you would have had in traveling directly between New York and Dublin ($850 x 7,s = $331) from your total expenses in traveling from New York to Paris to Dublin and back to New York ($450 * $200 + $500 = $1,150). Your deductible air travel expense is $819 51150 - $331). Nonbusiness activity at, near, or beyond business destination. If you had a vacation or other nonbusiness activity at. near, or beyond your business destination, you must aitocate part of your travel expenses to the nonbusiness activity. The part you must ailocate is the ainoun:t it would have cost you to travel between the point where travel outside the United States begins and your business destination and a return to the point where travel outside the United States ends. You determine the nonbusiness portion of that expense by multiplying it by a fraction. The numerator of the fraction is the number of non- business days during your travel outside the United States and the denominator is the total number of days you spend outside the United States. None of your travel expenses for nonbusi- ness activities at, near, or beyond your business destination are deductible. Example. Assur :ne that the dates are the same as in the previous example but that in- stead ofgoing to Dublin for your vacation, you fly to Venice. Italy, for a vacation. You cannot deduct any part of the cost of your trip from Paris to Venice and return to Paris. In addition, you cannot deductbhe of the airfare and other expenses from New York to Paris and back to New York. You can deduct "Fa of the round -trip plane fare and other travel expenses front New York to Paris, plus your meals, lodging, and any other business expenses you had in Paris. (Assurne these expenses total $900). If the round-trip plane fare and other travel- related expenses (such as food during the trip) are $300 from New York to Paris, you can deduct travel costs of $489 ("i:a $300), plus the full $900 for the expenses you had in Paris. Other methods. You can use another method of counting business days 'r' you establish that it more clearly reflects the time spent on other than business activities outside the United St<:t3s. Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the en- 'ire cost of the trip Is a nondeductible personal expense. if you spend some time attending brief professional seminars or a continuing education program. you can deduct your registration: fees and other expenses you have that are directly related to your business. Example. The university from which you graduated has a continuing education prograni for members of its alumni association. This pro - grarn consists of trips to various foreign coun- tries where academic exercises and conferences are set up to acquaint individuals in most occupations with selected facilities in sev- eral regions of the world. However, none of the conferences are directed toward specific occu- pations or professions. It is up to each particle pant to seek out specialists and organizational settings appropriate to his or tier occupational interests. Three-hour sessions are held each day over a 5 -day period at each of the selected overseas facilities where participants car meet with indi- vidual practitioners. These sessions are com- posed of a variety of activities including workshops, mini - lectures, role playing, skill de- velopinent, and exercises. Professional confer- ence directors schedule and conduct the sessions. Participants can choose those ses- sions they wish to attend. You can participate in this program since you are a member of the alumni association. You and your family take one of the trips. You spend about 2 Hours at each of the planned sessions. The rest of the time you go touring and sightsee- ing with your family. The trip lasts less than 1 week. Your travel expenses for the trip are not deductible since the trip was primarily a va-,:a- tion. However, registration fees and any other incidental expenses you have for the five planned sessions you attended that are directly related and beneficial to your business are de. ductible business expenses. These expenses should be specifically stated in your records to ensure proper ailocatior: of your deductible busi•• ness expenses. Luxury Water Travel If you travel by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount you can deduct. The limit is twice the highest federal per client rase allowable at the time of your travel. (Generally, the federal per diem is the amount paid to federal goverment employ- ees for daily living expenses when they travel away from horne, but in the United States, for business purposes.) Daily limit on luxury water travel. The high- est federal per diem rate allowed and the daily limit for luxury water travel in 2002 is shown in the following table. Example. Caroline, a travel acent, traveled by ocean liner from New York to London, Eng- land: on business in May. Her expense for the 6 -day cruise was $3;500. Caroline's deduction for the cruise cannot exceed $3:048 (6 days $508 daily limit). Highest Daily Lirnit 2002 Federal on Luxury Dates Per Dwm Vyatrr Travel Jar•.1- Sep.30 S254 $508 Oct. 1 -Dec. 31 258 518 Example. Caroline, a travel acent, traveled by ocean liner from New York to London, Eng- land: on business in May. Her expense for the 6 -day cruise was $3;500. Caroline's deduction for the cruise cannot exceed $3:048 (6 days $508 daily limit). i C] • Meals and entertainment. If your expenses for luxury water travel include separately stated amounts for meals or entertainment, those arnounts are subject to the 50% limit on meals and entertainment before you apply the daily limit. For a discussion of the 50% limit, see chapter 2. Example. In the previous exannpie, Caroline-'s luxury water travel had a total cost of $3,500. Of that amount, $1,800 was separately stated as meals and entertainment. Caroline, who is self- employed, is not reimbursed for any of her travel expenses. Caroline figures her de- ductible travel expenses as follows. Meals and enter•airr :rent ...... $1,60c) 50% iirnit .. ... .5!i A:lowabie meals 8 entertainment S 800 Other travel expenses ... + 1.900 Atlowabie cost before the daily linnit .... $2,700 Daily limit for May 2002 ...... it 508 Times nurnber of days ....... x e. Maximum luxury water travel deduction $3,043 Amount of allowable deduction ..... $2,700 Caroline's deduction for her cruise is limited to $2,700, even though the limit on luxury water travel is higher. Not separately stated. If your ,real or en- tertainment charges are not separately stated or are not clearly identifiable, you do riot have to allocate any portion of the total charge to meals or entertainment. Exceptions The daily limit on luxury water travel (discussed earlir.6 does not apply to expenses you have to attend a convention, seminar, or meeting on board a cruise ship. See Cruise Ships under Conventions Held Outside the North American Area. Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. You cannot deduct the travel expenses for yourfam- ily. If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. Yourapp ointment oreleetion as a dsie- �_ gate does not, in itself, detenmine whether you can deduct travel ex- penses. You can deduct your travel expenses Only L`yourattendance is connected to yourown trade or business. Convention agenda. The convention agenda or program generally shows tae purpose of the convention. You can show your attendance at the c. nvention benefits your trade or business by comparing the agenda :vith the official duties and responsibilities of your position. The agenda does not have in deal specifically with your offi- cial duties and responsibilities; it wilt be enough if the agenda is so related to your position that it shows vour attendance was for business pur- poses. Conventions Held Outside the North American Area You cannot deduct expenses for attending a convention, seminar, or sirnilar meeting held outside the North American area unless: ?) The meeting is direr ly related to your trade or business, and 2) It is as reasonable to hold the meeting outside the "forth American area as in it. If the meeting meets these requirements, you also must satisfy the rules for deducting ex- penses for business trips in qeneral, discussed earlier under Travel Outside the United States. North American area. The North American area includes the following locations. American Samoa Kingman Reef Baker Isiand Marshall islands Barbados Mexico Bern rich Micronesia Canada Midway Islands Costa Rica Northeir. Mariana Dominica Islands Dominican; Republic Palau Grenada Palmyra Guarn Puerto Rico Guyana Saint Lucia Honduras Trinidad and Tobago Howland Island USA Jamaica U.S. Virgin Islands Jarvis Island Wake island Johnston island Reasonableness test. The following factors are taken into account to determine if it was reasonable to hold the meeting outside the North American area. 1) The purpose Of the meeting and the activi- ties taking place. at the meeting. 2) The purposes and activities of the spry scring organizations or groups. 3) The homes of the active members cif the sponsoring organizations arid the places at which other meetings of the sponsoring or- ganizations or groups have been or will be held. 4) Other relevant factors you may present. Cruise Ships You can deduct up to $2,000 per year of your expenses of attending conventions, seminars. or similar meetings held on cruise ships. AL ships that sail are considered cruise shins. You car deduct these expenses only if all five of the following requirernents are met. 1) The convention, seminar, or meeting is di- rectly related to your trade or business. 2) The cruise ship is a vessel registered in the United States. 3) All of the cruise ship's ports of call are in the United States or in possessions of the United States. 4) You attach to your return a written state- ment signed by you that includes in orma- tion about: a) The total days of the trip (not including the days of transportation to arid from the cruise ship ports, b) The number of hours each day that you devoted to scheduled business activi- ties, and c) A program of the scheduled business activities of the meeting. 5) You attach to your return a written state- ment signed by art officer of the organiza- tion Or group sponsoring the meeting that includes: a) A schedule, of the business activities of each day of the meeting, and b) The number of hours you attended the scheduled business activities. 2. Entertainment You may be able to deduct business- related entertainment expenses you have for entertain- ing a client; customer, or employee. The mies and definitions are summarized in 'able 2. You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following two tests. 11 Directly related test. 2) Associated test. Both of these tests are explained later under What Emerfainmert Expenses Are Deductible. An ordinary expense is one that is common and accepted in your field of trade, business, or profession. A necessary expense is one t ?tat is helpful and appropriate for your business. An expense does not have to be required to be considered necessary. The amount you can deduct for enter - tarnmenf expenses tray be limited. Generally, you can deduct only 50% of your unreimbursed entertainment expenses. This timit is discussed later under 50% Limit. Club dues and membership fees. You can- not deduct dues (including initiation fees) for membership in any club organized for: 1) Business, 2) Pleasure, 31 Recreation, or 4; Other social purpose. This rule applies to any membership organiza- tion if one of its principal purposes is either: 11 To conduct entertainment activities for members or their guests, or 2) To ,provide members or their guests with access to entertainment facilities, dis- cussed later. The purposes and activities of a club; riot its name, will determine whether or not you can deduct the dues. You cannot deduct dues paid to: Chapter 2 Entertainment Page 9 1) Country clubs, 2) Golf and athletic clubs, 3) Airline clubs, 4) Hotel clubs, and 5) Clubs operated to provide meal under cir- cumstances generally considered to be conducive to business discussions. Entertainment facilities. Generally, you can- not deduct any expense for the use of an enter- tainmert facility. This includes expenses for depreciation and Operating costs such as rent, utilities, maintenance, arid protection. An entertainment facility is any property you own, rent, or use for entertainment Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. Out-of-pocket expenses. You can deduct out -of- pocket expenses, such as for food and beverages, catering, gas, and fishing bail, that ,you provided during entertainment at a facility. These are not expenses for the use of an enter- tainment facility. However, these expenses are subject to the directly - related and associated tests and to the 50% limit, ail discussed later. Gift or entertainment. Any item that might be considered either a gift or entertainment gener- ally will be considered entertainment. However, if you give a customer packaged food or bever- ages that you intend the customer to use at a later date, treat it as a gift. If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or even:, you have a choice. You can treat the tickets as either a gift or entertainnnerit, whichever is to your advantage. You can chance your treatment of the tickets at a later date by filing an amended return. Generally, an amended return trust be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. If you go with the customer to the event, you must treat the cost of the tickets as an entertain- ment expense. You cannot choose, in this case, to treat the tickets as a gift. What Entertainment Expenses Are Deductible? This section explains different types of entertain - merit expenses that you may be able to deduct. It also explains the directly - related test and the associated test. Entertainment. Emertairmlent includes any activity generally considered to provide enter- tainment. amusement, or recreation. Examples include entertaining guests at nightclubs; at so•• vial, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fish- ing, vacation, and similar trips. Entertainment also may include meeting per- social, Irving, or family reeds of individual, su;-Ii as providing meals, a hotel suite, or a car to customers or their families. Page 10 Chapter 2 Entertainment A meal as a form of entertainment. Enter- tainment includes the cost of a meal you provide co a customer or client, whether the meal is a part of other entertainment or by itself. A meal expense includes the cost of food, beverages, taxes, and tips for the meal. To deduct an entertainment- related meal, you or your em- ployee must tie present when the food or bever- ages are provided. Trade association meetings. You can de- duct entertainment expenses that are directly related to and necessary for attending business meetings or conventions of certain exempt orga- nizations if the expenses of your attendance: are related to your active trade or business. These organizations include business leagues, cham- bers of commerce, real estate boards, trade associations, and professional associations. You cannot claim the cost of your meal Entertainment tickets. Generally, you cannot both as an antertainment expense and deduct more than the face value of an entertain.. as a travel expense. rnert ticket, even if you paid a higher price. For example, you cannot deduct service fees you pay to ticket agencies or broker or any amount S TIP Meals .sold in the norniat course o; your business are not considered enterfain- mart Deduction may depend on your type of business. Your kind of business may deter- mine if a particular activity is considered enter- tainment. For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generaliy is not considered entertainment, This is because fashion shows are typical in your business. But, if you are an appliance distributor and hold a fashion show for the SPOUSes of your retailers, the show generally is considered en- tertainment. Separating costs. if you have one expense that includes the costs of entertainment, and other services {such as lodging or transporta- front, you must allocate that expense bet-weer. the cost of entertainment and the cost of other services. You roust have a reasonable basis for making this allocation. For example, you must allocate your expenses if a hotel includes enter- tainment in its lounge on the same bill with your room charge:. Taking terns paying for meats or entertain - merit. if a group of business acquaintances take turns ;ricking up each others' meal or enter - tainmen. checks without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. Lavish or extravagant expenses. You can- not deduct expenses for emertairintent that are lavish or extravagant. An expense is riot consid- ered t<-:vish or extravagant if ..:s reasonable considering the facts and circumstances. Ex- penses will not be disallowed just because they are more than a fixed dollar amount or lakri place at deluxe restaurants, hotels, nightclubs, or resorts. Allocating between business and nonbusiness. If you entertain business and nonbusiness individuals at the sarne event, you :rust divide your entertainment expenses be- 'ween business and noribusiness. You can de- duct only the business part. If you cannot establish the part of the expense for each per- son participating, allocate the expense to each participant on a pro rata basis. Example. You entertain a group of individtu- als that includes yourself, three business pros- pects, and seven social guests. Only °h, of the expense qualifies as a business entertainment expense. You cannot deduct the expenses for the seven social guests because those costs are nonbusiress expenses. over the face value of the rickets you pay to scalpers. Exception for events that benefit charita- ble organizations. Different rules apply when the cast of a ticket to a sports evert ber:e:fits a charitable organization. You can take into ac- count the full cost you pay for the ticket, even if it is more than the fact; value, if all of the following conditions apply. I The event's main purpose is to benefit a qualified charitable organization. 'L) The entire net proceeds go to the charity. 3) The event uses volunteers to perform sub- stantially all the event's work. The 50% limit on ertertainrnent does TIP not apply to any expense fora package deaf that includes a ticket io such a chartable sports event. Example 1. You purchase tickets to a golf tournament organized by the local volunteer fire company. All net proceeds will be used to buy new fire equipment. The volunteers will run: the tournament. You can deduct the entire cost of the tickets as a business expense if they other- wise qualify as art entertainment expense. Example 2. You purchase tickets to a col- lege football game through a ticket broker. After having a business discussion, you take a client to the game. Net proceeds from the game go to colleges that qualify as charitable organizations. However, since the colleges also pay individuals to perform services, such as coaching and recruiting. you can only use the face value of the tickets in deferminirg your business deduction,. Skyboxes and other private luxury boxes. If you rent a skybox or other prolate luxury box for more than one event at the same sports arena, you generally cannot deduct more than the price of a nanluxury box seat ticket. To determine whether a skybox has been rented for more than one event, court each gainte or other performance as one event. For example, renting a skybox for a series of playoff games is considered renting it for more than one event. Ali skyboxes you rent in the same arena, along with any rentals by related parties, are considered in making this determination. Related parties include: 1) Family members ;spouses. ancestor, and lineal descendants), 2) Parties who have made a reciprocal ari- rangement involving the sharing of skyboxes, 3) Related corporations, 0 • • Table 2. When Are Entertainment Expenses Deductible? General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly - related test or the associated test. Definitions • Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. • An ordinaty expense is one that is common and accepted in your field of business, trade, or profession. • A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. Tests to be met Directly- related test • Entertainment took place in a clear business setting, or • Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. Associated test • Entertainment is associated with your trade or business, and • Entertainment directly precedes or follows a substantial business discussion. Other rules • You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. • You cannot deduct expenses that are lavish or extravagant under the circumstances. • You generally can deduct only 50% of your unreimbursed entertainment expenses (see 50% Limit). 4) A partnership and its principal partners, and 5) A corporation and a partnership with com- mon ownership. Example. You pay $3,000 to rent a 10 -seat skybox at Team Stadium for three baseball games. The cost or regular nor-luxury box seats at each event is $20 a seat. You can deduct (subject to the CO% limit) $600 ((10 seats x $20 each) r 3 events). Food and beverages in skybox seats. If expenses for food and heverages are separately stated, you can deduct these expenses in addi- tion to the amounts allowable for the skybox, subject to the requirements and limits that apply. The amounts separately stated for food and beverages must be reasonable. You cannot in- flate the charges for food and beverages to avoid the limited deduction for skybox rentals. Directly - Related Test To meet the directly- retaed test for entertain - ment expenses (including entertainment - related meals), you must show 'hat: 1) The main purpose of the combined busi- ness and entertainment was the active conduct of business, 2) You did engage in business with the per- son during the entertainment period, and 31 You had more than a general expectation of getting incorne or some other specific business benefit at some future time. Business is generally riot considered to be the main purpose when business and entertain- ment are combined on hunting or fishing trips, or on ya;.;tits or other pleasure boats. Even if you show that business was the main purpose, you generally cannot deduct the expenses for tike use of an entertainment facility. See Entertain- ment facilities earlier in this chapter. You must consider all the facts, including the nature of the business transacted and the rea- sons for conducting business during the enter - tainrnent. It is not necessarf to devote more time to business than 'o entertainment. However, if I he business discussion is only incidental to 'he entertainment the entertainment expenses do not meet the directly- related test. You do not have to show that business TIP income crotherbusiness benefit actu- ally resulted from each orlertainment expense;. Clear business setting. If the entertainment takes place in a clear business setting and is for your business or work, the expenses are consid- ered directly related to your business or work. The following situations are exainples of enter - tainriert in a clear business setting. 1) Ernertaininentin a Irospotality room at a convention where business goodwill is cre- ated through the display or discussion of business products. 2) Entertainment that's mainly a price rebate on the sale of your products (such as a restaurant owner providing an occasional free meat to a loyal customer). 3 i Entertainment of a clear business nature occurring under circumstances where there is no meaningful personal or social relationship between you and the persons entertained. An example is entertainment of business and civic leaders at the open- ing of a new hotel or play when the pur- pose is to get business publicity, rather than to create or maintain the goodwill of the persons entertained. Expenses not considered directly related. Entertainment expenses generally are not con- sidered directly related if you are not there or in situations where there are substantial distrac- tions that generally prevent you from actively conducting business. The following are exam- ples of situations where there are substantial distractions. 1) A meeting or discussion at a nightclub, theater, or sporting event. 2) A meeting or discussion during what is es- sentially a social gathering. such as a cocktail party. 33 A meeting with a group that includes per- sons wh0 are not business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts. Associated Test Even if your expenses do nca meet the directly related test, they may meet the associ- ated test. To meet the associated test for enterain- nient expenses (including entertainment - related meals), you must show that the entertainment is: 1) Associated with the active conduct of your trade or business, and 21 Directly before or after a substantial busk Hess discussion (defined later). Associated with trade or business. Gener- ally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. The purpose may be to get new business or to encourage the continuation of an existing business relationship. Substantial business discussion. Whether a business discussion is substantial depends on the fa:;ts of each case. A business discussion will not be considered substantial unless you can show that you actively engaged in the dis- cussion, meeting, negotiation, or other business transaction to get income or sorne other specific business benefit. The meeting does not have to be for any specified length of time, but you must show that the business discussion was substantial in rela- tion to the meal or entertainment. It is not neces- sary that you devote more time to business than to entertainment. You do not have to discuss business during the meal or entertainment. Chapter 2 Entertainment Page 11 L-1 Figure A. Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. See Exceptions to the 50% Limit. r All employees and self - employed persons can use this chart. Start Here Were your meat and entertainment expenses reimbursed? (Count only reimbursements your employer did not include in box 1 of your Form W -2. If self - employed, count only reimbursements from clients or customers that No are not included on Form 1099 -MISC, Miscellaneous Income.) yes If an employee, did you adequately account to your employer under an accountable plan? If self - employed, did you provide the payer No with adequate records? (See chapter 6.) yes —1 Did your expenses exceed the reimbursement? No I yes For the amount reimbursed... I I For the excess amount.. Your meal and entertainment expenses are NOT subject to IV Your meal and the 50% limit. However, since entertainment expenses the reimbursement was not ARE subject to treated as wages or as other the 50% limit. taxable income, you cannot deduct the expenses. Meetings at conventions. You are consid- ered w have a substantial business discussion if you attend meetings at a convention or sirrtilar event, or at a trade or business meeting spon- sored and conducted by a busiress or profes- sional organization. However, your reason for attending the convention or meeting must be to further your trade or business. The organization that sponsors the convention or meeting must schedule a program of business activities that is the main activity of the convention: or meeting. Directly before or after business discussion. If the entertainment is field or; the saute day as the business discussion, it is considered to be held directly before or after the business discus- sion. If the entertainment and the business discus- sion are not held on the same day. you must consider the facts of each case to see if the associated test is met. Among the facts to con- sider are the place, date, and duration of the business discussion. If you or your business associates are from out of town, you must also consider the dates of arrival and departure, and the reasons the entertainment and the discus- sion did not take place on the same day. Example. A group of business associates comes from out of town to your place of busi.. mess to hold a substantial business discussion. If you entertain those business guests on the evening before the business OSCUSSICrt, or oft Page 12 Chapter 2 Entertainment the evening of the day followirg the business discussion, the entertainment generally is con- sidered to be held directly before or after the discussion. The expense meets the associated test. Expenses for spouses. You generally cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. However, you roan deduct these costs if you Can show that you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment. Example. You entertain a customer. The cost is an ordinary and necessary business ex- pense and is allowed under the entertainment vies. The customer's spouse joins you because it is impractical to entertain the customer without the spouse. You can deduct the cost of enter- taining the customer's spouse. If your spouse ;oins the party because the customer's spouse is present; the cost of the entertainment for your spouse is also deductible. 50% Limit In general, you can deduct only 50% of your business - related !real and entertainment ex- penses. (If you are subject to the Department of Transportation's "hours of service" limits, you can deduct a higher percentage. See Individuals subject to -• 'hour•; of service` limits. later.) The 50% limit applies to employees or their employers, and to seif- employed persons (in- cluding independent contrFL -tors) or their clients, depending on whether the expenses are reim- bursed. Figure A summarizes the general rules ex- plained !n this section. The 50% iimit applies to business meals or entertainment expenses you have while: 1; Traveling away from home (whether eating atone or with others) on business. 21' Entertaining customers at your place of business. a restaurant, or other location, or 3) Attending a business convention or recep- tion, business meeting, or business lunch- eon at a club. Included expenses. Expenses subject to the 50;0 limit include: 1) Taxes and tips relating to a business meal or entertainment activity, 2) Cover charges for admission to a night- club, 3; Rent paid for a room in which you hold a dinner or cocktail party, and 4) Amounts paid for parking at a sports arena. However. the cost of transpoitation to and from a business meal or a business - related entertain- ment activity is riot subject to the 509.lim:t. Application of 50% limit. The 50% limit on meat and entertainment expenses applies if the expense is otherwise deductible and is not cov- ered by one of the exceptions discussed later. The 50% limit also applies to certain ! real and entertainment expenses that are trot busi- ness related. R applies to meal and entertain- ment expenses you have for the production of income. itx;tuding rental or royalb, incorne. It also applies to the cost of meals included in deduces ble educational expenses. When to apply the 50% limit. You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. You first have to deterrnire the amount of meat and en- tertainment expenses that would be deductible under the other rules discussed in this publica- tion. Example 1. You spend $100 for a business - related meal. If $40 of that amount is not allowable because it is lavish and extrava- gant, the remaining $60 is subject to the 50% limit. Your deduction cannot be more than $30 (50% x $60). Example 2. You purchase two tickets to a concert and give them to a client. You pur- chased the tickets through a ticket agent. You paid $150 for the two tickets, which had a face value of $60 each ($120 total). Your deduction cannot be more than $60 (50% x $120). Exceptions to the 50% Limit Generally, business - related areal and entertain- ment expenses are subject to the 50% 4mil. Figure A can help you determine if the 50% limit applies to you. Expenses not subject to 50% limit. Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. 1 - Employee's refmbtrrsed expenses. If you are art employee, you are riot subject to the 50% limit on expenses for wh0i your employer reimburses you under an accountable plan. Ac- countable pians are discussed in chapter 5. 2 - Self - employed. If you are self -em- ployed. your deductible meal and entertainment expenses are not subject to the 50% limit if all three of the following requirements are met, 1) You have these expenses as an indepen- den i? contractor. 2) Your customer or client reimburses you or give., you an allowance for these ex- penses in connection with services you perform. 3) You provide adequate records of these ex- penses to your customer or client. (See chapter 5.) In this case, your client or customer is sub- ject to the 50% limit on the expenses. Example. You are a self- employed attorney who adequately accounts for meal and enter- tainment expenses to a client who reimburses you for these expenses. You are not subject to the directly- related or associated test. nor are you subject to the 50% limit. If the client can deduct the expenses, the client is subject to the 50% limit. If you ithe contractor) have expenses for •meals and entertainment related to providing services for r. client but do not adequately ac- count for and seek reimbursement from the cli- ent for those expenses, you are subject to the directly - related or associated test and to tt ;e 50`!0 limit. 3 - Advertising expenses. You are rot subject to the 50% limit if you provide meals. entertainment, or recreational facilities to the general public, as a meatus of advertising or promoting goodwill in the community. For exam- ple, neither the expense of sponsoring a televi- sion or radio show nor the expense of distributing free food and 'beverages to the gen- eral public is subject to the 50% lirni ?. 4 - Sale of meals or entertainment. You are not subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. For example, if you run. a nightclub, your expense for die enter- tainment you furnish to your customers, such as a floor show, is not subject to the 50% limit- 5 - Charitable sports event. You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charita- tile sports event. -'or the conditions the sports event roust meet, see Exception for events that bereft charitable organizations under Entertain- ment tickets, earlier. individuals subject to "hours of service" limits. You can deduct a higher percentage of your meal expenses if the meals take place miring or incident to any period subject to the Department of Transportation's "hours of serv- ice" limits. The percentage is 65% for 20 02, and it graduaily increases to 80% by the year 2008. individuals subject to the Department of Transportation's "hours of service" lim s include the following persons. 1) Certain air transportation workers (such as pilots; crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration: regula- A cost is incidental only if it does riot add substantial value to the gift. For example, the cost of gift wrapping is an incidental cost. How- ever; the purchase of an ornamental Nasket for packaging fruit is not art incidental cost if the value of the basket is substantial compared to the v<aue of the fruit. tions. 2) Interstate trunk operators and bus drivers who are under Department of Transporta- tior. regr;W :ons. 3) Certain railroad employees (such as engi- neers, conductors, train crews, dispatch- ers, and control operations peisorinei) who are under Federal railroad Administration regulations. 4) Certain merchant mariners who are under Coast Guard regulations. 3. Aft ibis If you give gifts in the course of your trade or business, you can deduct all or part of the cost. This chapter explains the limits and rules for deducting the costs of gifts. $25 limit. You car; deduct no more than $25 for business gifts you give directly or indirectly to any one person during your tax year. A gift to a company that is intended for the eventual per - sonai use or benef ;t of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who re- ceive the gift. if you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. This rule does not apply if you have a bona `de, independent busi- ness connection with that family member and the gift is not intended for the customers even- tual use, if you and your spouse both give gifts, both of You are treated as one taxpayer. It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. if a partnership gives gifts• the partner- ship and the partners are treated as one tax- Payer. Example. Bob .!ones sells products to Local Company. He and his wife, Jan, gave : ocai Company three cheese packages to thank there for their business. They paid $80 for each pack- age, or $240 total. Three of Local Company's executives took the packages home for their families' use. Bob and Jan have no independent business relationship with any of the executives' other family members. They can deduct a total of $75 ($25 limit 'r. 3) for the cheese packages. Incidental costs. Incidental costs, such as engraving on jewelry: or packaging, insuring, and «;ailing, are generally riot included in deter- mining the cost of a gift for purposes of the $25 bruit. Exceptions. 'rho following items are not con- sidered gifts for purposes of the $25 limit. 11 An item that costs $4 or less and: a) Has your name clearly and perma- nently imprinted on the gift, and b) Is one of a number of iderxicai items you widely distribute. Examples include penis. desk sets, and plastic, bags and cases. 2) Signs, display racks, or other promotional material to be used on the business prerr:- ises of the recipient. Gift or entertainment. Any item that might be considered either a gift or entertainment gener- ally will be considered entertainment. However, if you give a customer packager,' food or bever- ages that you intend the customer to use at a later date, treat it as a gift. If you give a customer tickets to a theater ' performance or sporing event and you do not go with the customer to the performance or event, you have a choice. You can treat the cost of the tickets as either a gift expense or an entertain- ment expense, whichever is to your advantage. You can change your treatment of the tickets at a later date by filing an amended return. Generally, an amended return must be filed within 3 years from the date the original ret:I n was filed or within 2 years frorn the time the tax was paid, whichever is later. If you go with the customer to the event, you must treat the cost of the tickets as an en:terain- mert expense. You cannot choose, in this case, to treat the cost of the tickets as a gift expense. This chapter discusses expenses you can de- duct for business transportation when you are not traveling away from home as definert . in chapter 1. 'f hose expenses ;nnide the cost of transportation by air, rail, bus, taxi, etc.. and the cost of driving and maintaining your car. Transportation expenses include the ordi- nary and necessary costs of all of the following. • Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax horne. Tax home is defined in chapter 1. • Visiting clients or customers. • Going to a business meeting away front your regular workplace. • Getting from your hoare to a temporary workplace when you have one or riore Chapter 4 Transportation Page 13 • r �J Figure B: When Are Transportation Expenses Deductible? Most employees and self - employed persons can use this chart. (Do not use this chart it your home is your principal place of business. See Office in the home.) 3 J0 .ca o.0 �0 oi��°° \ dys Temporary d work location X40 P Always deductible Never deductible Home Regular or main job Always 2P deductible aP 4P e Dora Second job Home: The place where you reside. Transportation expenses between your home and your main or regular place of work are personal commuting expenses. Regular or main job: Your principal place of business. If you have more than one job, you must determine which one is your regular or main job. Consider the time you spend at each, the activity you have at each, and the income you earn at each. Temporary work location: A place where your work assignment is realistically expected to last (and does in fact last) one year or less. Unless you have a regular place of business, you can only deduct your transportation expenses to a temporary work location outside your metropolitan area. Second job: If you regularly work at two or more places in one day, whether or not for the same employer, you can deduct your transportation expenses of getting from one workplace to another. You cannot deduct your transportation costs between your home and a second job on a day off from your main job. regular places of work. These temporary workplaces can be either within the area of your tax home or outside that area. Trarsporation expenses do riot include ex- penses you have while traveling away from home overnight. Those expenses are travel ex- penses which are discussed in chapter 1. How- ever, if you use your car while traveling away from home overnight, use the rules in this chap- ter to figure your car expense deduction. See Car expenses. later. Illustration of transportation expenses. Fig- ure & it ustrates the rules for when you call deduct transportation expenses when you have a regular or main job away from your home. You may wart to refer to it when deciding whether you can deduct your transportation expenses. Temporary work location. If you have one or more regular work locations away from your dome and you cofnmute to a temporary work location in the same trade or business, you can deduct the expenses of the daily routed -trip transportation between your home and the teir.- porary location, regardless of distar:-ce. Page 14 Chapter 4 Transportation if your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the errpioyment is tempo - rary unless there are facts and circumstances that would indicate otherwise. If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the em- ployment is not temporary, regardless of whether it actually lasts for more than 1 year. If employment at a work location initially is realisti- cally expected to last for -t year or less, but at some later date the employment is realistically expected to last more than 1 year, that employ- ment will be treated as ternporary (unless there are facts and circumstances that would indicate otherwise) until your expectation charges. it will not be treated as ter ripurany after the date you determine it will last more than 1 year. if the temporary work location is beyond the general area of your regular plane of work and you stay overnight; you are traveling away from home. You may have deductible travel ex- penses as discussed in chapter 1. No regular place of work. If you have no reguiar piace of work but ordinarily work in the metropolitan area where you live, you can de- duct daily transportation costs between home and a temporary work site outside that metro- politan area. Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered pare of that metropolitan area. You cannot deduct, daily transportation casts between your home and temporary work sites within your metropolitan area. These are non - deduct Ible commuting expenses. Two places of work. If you work at hvo places in one day, whether or not for the same em- plover, you can deduct the expense of getting from one workplace to the other. However, if for some personal reason you do not go directly from one location to the other, you cannot de- duct more than the amount it would have cost you to go directly from the first location to the second. Transportation expenses you have in going between home and a part -time job on a day off from your main job are commuting expenses. You cannot deduct them. Armed t=ortes reservists. A ineeting of an Armed Forces .reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. You can deduct the expense of getting from one workplace to the other as just discussed under Two places of wary. You usually cannot deduct the expense if the reserve meeting is hold on a day on which you do not work at your regular ob. In this case, your transportation generally is a nondeductible corn - muting expense. However, you ran deduct your transportation experses if the location of the meeting is temporary and you have one or more regular places of work. If you ordinarily work in a particular metropol- itan area but not at any specific location and the reserve meeting is held at a temporary (ocation outside that metropolitan area, you can deduct your transportation expenses. If VOL! travel away from home overnight to attend a guard or reserve nleetirg, you can deduct your travel expenses. These expenses are discussed in chapter 1. Commuting expenses. You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work.. These costs are personal commuting expenses. You cannot de- duct commuting expenses no matter how far your home is from your regular place of work. You cannot deduct commuting expenses even if you work during the commuting trip. Example. You had a telephone installed in your car. You sometimes use that telephone to make business calls while commuting to and from work. Sometimes business associates ride with you to and from work. and you have a business discussion in the car. These activities do not change the trip from personal to busi- ness. You cannot deduct your commuting ex- penses. Parking fees. Fees you pay to park your car at your place of business are nondeductible cornrruting expenses. You can, however, de- duct business- related parking fees when visiting a customer or client. Advertising display on car. Putting display material that advertises your business on your car does not change the use of your car from •personal use to business use. If you use this car for commuting or other personal uses, you still cannot, deduct your expenses for those uses. Car pools. You cannot deduct the cost of using your car in a nonprofit car pool. Do not include payments you receive from the passen- gers in your income. These payments are con- sidered,' reimbursements of your expenses. However, if you operate a car pool for a profit, you must include payments from passengers :n your income. You can then deduct your car expenses (using the rules in this publications. Hauling tools or Instruments. Hauling tools or instruments in your car white commuting to and from work does not make your car ex- penses deductible. However, you can deduct any additional costs you havefor hauling tools or instruments (such as for renting a trailer you tow with your car). Union members'trips from a union hall. If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Al- though you need the union to get your work assignments, VOL; are employed where you work, not where the union hall is fo.ated. Office in the home. If you have an office in your home that qualifies as a principal place of business. you can deduct your daily trarsporta- tion costs betweer. your home and another work •location in the same trade or business. (See Publication 587, Business Use of Your Home. for information or. determining if your home of- fice qualifies as a principal place of business.) Examples of deductible transportation. The following examples show when you can deduct transportation expenses based on the location of your work and your horne. Example 9. You regularly work in an office in the city where you live. Your employer sends YOU to a one -week training session at a different office in the same city. You travel directly from your home to the t;rining location and return each day. You can deduct the cost of your daily round -trip transportation•, between your home and the training location. Example 2. Your principal place of business is in your home. You can deduct the cost of round -trip transportation between your qualify- ing home office and your client's or customer's place of business. Example 3. You have no regular office, and you do not have an office in your home. In this case, the location of your first business contact is considered your office. Transportation ex- penses between your home and this first contact are nordedurtible commuting expenses. Trans- portation expenses between your last business contact and your home are also rondeduot:bie commuting expenses. Although you cannot de- duct the costs of these trips, you car deduct the costs of going from ore client or customer to another. Car Expenses If VOL; use your car for business purposes, you ordinarily can deduct car expenses. You gener- ally can r use one of the two follorrirg methods to figure your deductible expenses. + Standard mileage rate. • Actual car expense;. If you use actual expenses to figure your de- duction for a car you lease, there are rules that affect the amount of your lease payments that you can deduct. See Leasing a Car, later. in this publication, "car" includes a van, pickup: or panel truck. For the definition of "car' for depreciation purposes, see Car defined under Actual Car Eypcnses , later. You may be erititled to a tax credit for TIP an electric vehicle or a deduction from gross ircorne for a part of the cost of a clean -fuel vehicle that you place in service dur- ing the year. The vehir e must meet certain requirements, and you do not have to use it in your business to qualify for the credit or the deduction. However, you must reduce your ba- sis for depreciation of the electric vehicle or clean -filei vehicle property by the amount of the credit or deduction, you claim. See Depreciation Deduction. later, under Actual Car Expenses. For more information. on electric or clear, -fuel vehicles, see chapter 12 of Pubiir3tion 535. Rural mail carriers. If you are a rural mail carrier, you may be able to treat the amount of qualified reimbursement you received as 'tie amount of your allowable expense. Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the amount of reimbursement it your ncome. And, since the reimbursement equals the expense, you have no deduction: to report oil your tax return. A "qualified reimbursement" is the amount of .reimbursement you receive that meets both of the following conditions. 1) It is given as an equipment maintenance allowance (EMA) to employees of the U.S. Postal Service,. 2) It is at the rate contained in the 1991 col- lective bargaining agreement. Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. See your employer for information or. your reim- bursement. J" you are a rural mail carrier and re.- ceived a qualified reinibursernent, you cannot use the standard mileage rate. Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. For 2002, the standard mileage rate is 36112 cents a mite for all business miles. This rate is adjusted periodi- ;ally. rf you use the standard mileage rate for 1 a year, you cannot deduct your actuai car expenses for that year. You e:anrot deduct the special depreciation atlowance (und you do rot .need to .make; the election not to claim. the allowarce), depreciation. oriease pary- merts, maintenance, and repairs. gasoline fir. - cluding gasoline taxes), oil, insurance, and vehicle registration fees. See; Choosing the standard mileage rate and Standard mileage rate not allowed, later. You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. See chapter 6 for more information on reimbursements. Choosing the standard mileage rate. If you want to use the standard mileage rate for a car you own, you roust choose to use it in the first year the car is available for use in your business. - hen in later years, you can choose to use either the standard mileage rate or actual expensns. If you want to use the standard,' mileage rate for a. car you lease, you must use it for the entire lease period. For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease; period (including renewals) that is after 1997. If you choose to use the standard mileage rate, you are considered to have chosen not to use the depreciation methods discussed fated. This is because the standard mileage rate in- cludes an allowance for depreciation that is not expressed in terms of years. If you charge to the actual expenses method In a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. For mere informa- tion about depreciation included in the standard mileage rate, see Exception, under Methods of depreciation tinder Depreciation Deduction.. later. Standard mileage rate not allowed. You cannot, use the standard mileage rate if you: 1) Use the car for hire (such as a taxi). 2) Use two or more cars at the same time (as inn fleet operations), 3) Claimed a depreciation deduction for the ar using any method other than straight line. for example, MACRS (as discussed later under Methods of depreciation under Depreciation Deduction). 41 Claimed a section 179 deduction (dis- cussed later) on the czar; 5) Claimed the special depreciation allow- ance (discussed later) oil the car, 6) Claimed actual car expenses after 1997 for a car you leased, or 7) Are a rural mail carrier who received a qualified reimbursement. (See Fural mail carriers under Car Expenses, earlier.) Two or more cars. If you own two or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. However, you may be able to deduct your actual expenses for operat. ing each of the cars in your busir;e-ss. See Actual CarExperrses, later, for information on how to figure your deduction. Chapter 4 Transportation Page 15 You are not using two or more cars for busi- ness at the same time if you alternate using (use aa at different times) the gars for business. •Tie following examp ?es illustrate the niles for when you can and cannot use the standard mileage rate for two or more cars. Example 1. Marcia, a salesperson, owns a car and a van that she alternates using for call- ing on her customers. She can use the standard mileage rate for the business rnileage of the car and the van. Example 2. Tony uses his awn pickup trick in his landscaping business. During the year, he trader.' in his old truck for a newer gee. Tcr, y can use the standard mileage rate for the business mileage of both the old and the new trucks. Example 3. Chris owns a repair shop and an insurance business. He uses his pickup truck for the repair shop and his car for the insurance business. No one else uses either the truck or the car for business purposes. Chris can use the standard mileage rate for the business use of the truck and the car. Example 4. Maureen owns a car and a van that are both used in her housecleaning busi- ness. Her employees use the van and she uses the car to travei to the various customers. Mau- reen cannot use the standard mileage rate for the car or ;lie van. This is because both vehicles are used in Maureen's business at the same time. She must use actual expenses for both vehicles. Interest. If you are an employee, you cannot •deduct any interest paid on a car loan. This applies even if you use the car 100% for busi- ness as an employee. However, if you are self- employed and use your car in your business, you can deduct that part of the interest expense that reprosenis your business use of the car. For example, if you use Your car 60% for business, you can deduct 60% of the Interest on Schedule C (Form 1040). You cannot deduct the rest of the interest expense. if you use a .home equity loan, to El purchase your car, you may be abie to deduct the interest. See Publicaton 936, Horne Mortgage Interest Deduction, for More information. Personal property taxes. If you itemize your deductions on Schedule A (Forin 1040). you can deduct on line 7 state and local personal prop- erty taxes on motor vehicles. You cart take this deduction even if you use the standard mileage rate or if you do riot use the car for business. if you are self -er. rployed arid use your czar in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C, Schedule C —EZ, or Schedule F (Form 1040. If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on S.uredule A (Form 1040). Parking fees and tolls. In addition to using the standard mileage rate, you can deduct any business - related parking fees and tolls. (Parking fees that you pay tc park your car at your place of work are nondeductible commuting ex- penses.) Page 16 Chapter 4 Transportation Sale, trade-in, or other disposition. if you sell, trade in, or otherwise dispose of your car, you may have a gain or less on the transactior. or an adjustment to the basis of your new car. See Disposition of a Car, later. Actual Car Expenses If you do not use the standard mileage rate, you :nay be able to deduct your actual car expenses. If you qusllfy to use both methods, you TIP may want to figure; your deduction both ways to see which gives you a larger deduction. Actual car expenses include: Depreciation Lease Registration Licenses payments fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees ff you have fuily depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Continue to keep records, as explained later in chapter 5. Business and personal use. If you use your .car for both business and personal purposes, you must divide your expenses between busi- ness and personal use. You can divide your expense based on tare miles driven for each purpose. Example. You are a sales representative for a clothing firm and drive your car 20;000 mites during the year; 12,CrJ0 miles for business and 8,000 rniles for personal use. You car claim only 60;5 (12,000 + 20,000) of the cost of oper- ating your car as a business expense. Employer- provided vehicle. tf you use a ve- hicle provided by your employer for business purposes, you can deduct your actual un- reimbursed car expenses. You cannot use the standard mileage rate. See Vehicle Provided by ` /our Employer in chapter 6. Interest on car loans. if you are an employee, you cannot deduct any interest paid on a car ioan. This interest is treated as personal interest and is not deductible. If you are self- employed and use your car in that business, see Interest, earlier, :under Standard Mileage Rate. Taxes paid on your car. If you are an. ern - ployee, you can deduct personal property taxes paid on your car if, you itemize deductions. Enter the amount paid on line 7 of Schedule A (Form 1040). You cannot deduct sales taxes, even if you use your car 100% for business. Sales taxes are part of your car's basis and are recovered through depreciation. See Special Depreciation Allowance and Depreciation Deduction. later. Fines and collateral. You cannot deduct fines and collateral you pay for traffic violations. Casualty and theft losses. If your car is dam- aged. destroyed, or stolen, you --nay be able to deduct part of the loss that is net covered by insurance. See Publication 54 7 , Casualties, Di- sasters, anal Thefts, for;nfonration on deducting a loss on your car. Depreciation and section 179 deductions. Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Because the benefits last longer than one year, you gen- orally cannot deduct a capital expense. Flow - ever; you can recover this cost through the section 179 deduction: (the deduction ailovved by section 179 of the internal Revenue Code), the special depreciation allowance• and deprecia- tion deductions. By using, depreciation, you re- cover the cost over more than one year by deducting part of it each year. T he section 179 deduction, special depreciation allowance, and the depreciation deduction are discussed later. Generally, there are limits on these deduc- tions. Special rules apply if you use your car 50 %. or less in your work or business. You can claim a section 179 deduction, the special depreciation allowance, and use a de- preciation method other than straight line only if you do not use the standard mileage rate to figure your business- related car expenses in the year you first plane a car in service. If you claim either a section 179 deductirn, the special depreciation allowance, or deprecia- tion using a method other than straight line for its estimated useful life in the year you first place a car in service, you cannot use the standard mileage rate on that car in any future yektr. Car defined. For depreciation purposes, a car is any tour - wheeled vehicle (including a truck or van) that is made primarily for use on public streets, roads, and highways, its un- leaded ,gross vehicle weight (cross sehie le weight in the case of a truck or van) must not be more than 6,000 pounds. A car includes any part, component, or other item that is physically attached to it or is usually included in the purchase price. A car does not include: 1) An ambulance, hearse, or combination ambulance- hearse used directly in a busi- ness, or 2) A vehicle used directly in the business of transporting persons or property for pay or hire. See Special Depreciation Allowance, later for more information on hose to depreciate your vehicle. Section 179 Deduction The section 179 deduction allows you to treat part or all of the business cost of a car as a current expense rather than taking depreciation deductions over a number of years. The limit ort total section 179 and de- TIP preciation deductions (discussed later) may reduce or eliminate any berefit frorn ciaiming the seotion 179 deduction. You can claim the section.. 179 deduction only in the year you place the car in service. For this purpose, a car is placed in service when it is ready and available for a specific use, whether in a trade or business, a tax - exempt activity, a personal activity. or for the production of in- come. Even if you are not using the property, It is in service wher it is ready and available for its specific use. A car first used ter personal purposes cannot qualify for the deduction in a later year when its use changes to business. Example. In 2001 you bought a grey car and placed it in service for personal purposes. This year, you began to use it for business. Chancing