Geography of FAVR: how driver location determines rates

Introduction

Creating a FAVR program compliant with the Internal Revenue Service (IRS) requires calculating fixed and variable rates based on the precise geographic locations where your employees operate their vehicles for work-related purposes. By considering the centrality of geographical nuances, companies can tailor their reimbursement strategies to reflect the unique cost-of-living factors, driving conditions, and economic dynamics specific to each region. This article will investigate the intricacies of designing a FAVR program that accounts for both location and IRS guidelines.

Looking for a general overview of FAVR? Start here.

What is a base locality?

The base locality refers to the specific geographic area where the employee resides or drives for work, and it serves as the foundation for calculating the appropriate reimbursement rates.[1] Consequently, understanding and applying the concept of the base locality enables businesses to tailor their FAVR reimbursement rates to account for the unique cost structures, market dynamics, and driving conditions specific to particular areas across the United States. 

• Fixed rates and base locality: The base locality used for determining the fixed portion of the reimbursement is typically the place where the employee resides. This fixed payment covers projected fixed costs, including depreciation or lease payments, insurance, registration and license fees, and personal property taxes.
• Variable rates and base locality: When determining the variable portion of the reimbursement, the base locality is generally the geographic area where the employee drives for work-related purposes; this reflects the specific locality or region where the costs associated with variable expenses, such as fuel, maintenance, and repairs, are incurred by the employee.

Where is FAVR popular?

FAVR programs have gained widespread popularity across the United States, with every state accessing this innovative reimbursement approach. However, certain conditions have emerged as hotspots for FAVR programs, witnessing many drivers opting for this reimbursement method. 

Among the states where FAVR has gained substantial traction are California, Florida, Georgia, North Carolina, Ohio, Tennessee, and Texas. Among them, Texas has the highest number of FAVR drivers. The popularity of FAVR in these states can be attributed to various factors. Firstly, their thriving economies and diverse industries contribute to many employees using personal vehicles for work-related purposes. Additionally, the geographical expansiveness of these states plays a role in the popularity of these programs. With vast territories, drivers often must cover considerable distances, making accurate reimbursement calculations crucial. 

FAVR programs offer a tailored approach that considers each state’s unique driving conditions and mileage requirements. The favorable regulatory environments and IRS compliance guidelines have certainly facilitated the adoption of FAVR programs in these states. 

• California (CA) is known for its thriving technology and entertainment sectors, with major tech hubs like Silicon Valley and the bustling film industry in Hollywood. FAVR programs are popular in CA due to the large number of employees who regularly travel for business purposes, attending meetings or visiting clients.
• Florida (FL) is a state renowned for its tourism industry, attracting millions of visitors each year. FAVR programs in FL cater to the needs of employees who frequently travel for hotel inspections, marketing events, or customer visits. The reimbursement model of FAVR ensures that employees are adequately compensated for their travel-related expenses, encouraging efficiency and cost-effectiveness within the tourism sector.
• Georgia (GA) is home to a thriving film and television production industry, often referred to as “Hollywood of the South.” The nature of this industry requires frequent travel between shooting locations, casting calls, and production meetings. FAVR programs in GA provide a practical solution for compensating employees’ travel expenses, ensuring that they are fairly reimbursed for their mileage, meals, and other related costs.
• North Carolina (NC) has a diverse economy that includes industries such as finance, technology, and manufacturing. FAVR programs are popular in NC due to the significant number of employees who travel for client meetings, site visits, and corporate development activities. 
• Ohio (OH) is known for its manufacturing and automotive industries. FAVR programs in OH are particularly relevant for companies that require employees to travel for supplier visits, factory inspections, and sales meetings. 
• Tennessee (TN) has a strong presence in the healthcare and music industries. FAVR is favored in TN by healthcare organizations, allowing medical professionals to be properly compensated for their travel to different clinics or hospitals. Similarly, the music industry often involves touring and performances, making FAVR a suitable option for musicians and their support staff to receive reimbursement for their travel expenses.
• Texas (TX) boasts a diverse economy with key industries such as oil and gas, technology, and agriculture. FAVR programs have gained significant traction in the Lone Star State, primarily due to its vast size and extensive travel requirements within these industries. With numerous employees traveling long distances for work-related purposes, FAVR provides a flexible reimbursement system that takes into account the varying costs associated with different regions in the state.

In these regions, employers have no doubt recognized the value of implementing reimbursement strategies. As the popularity of FAVR continues to grow, more states will likely join the ranks of those applying this advantageous reimbursement model.

Where is FAVR available?

FAVR programs are available throughout the United States, covering every state nationwide. This comprehensive reimbursement model has been designed to cater to the specific needs and regulations of the U.S. market. Whether you reside in the bustling streets of New York City or the scenic landscapes of Montana, FAVR programs are accessible to employees who drive their vehicles for work-related purposes. Companies operating in various sectors, such as healthcare, sales, logistics, and more, can leverage FAVR programs to ensure that their employees are appropriately compensated for the expenses incurred while using their vehicles for work. 

However, if you happen to be in Canada, don’t fret! Cardata offers a dedicated program tailored specifically for Canadian drivers. By catering to the unique requirements of the Canadian market and Canada Revenue Agency (CRA), we ensure that employees in Canada receive reimbursement that aligns with their business-related vehicle expenses.[2]

Why is FAVR more geographic than Cents per Mile?

One of the critical differentiators between FAVR and the traditional Cents per Mile (CPM) reimbursement method is the level of geographical consideration. While CPM offers a single rate for all drivers across the United States, FAVR considers the actual geography of driving. CPM, often represented by a fixed rate per mile, provides a standardized reimbursement amount regardless of where the employee lives or works within the United States. For instance, if the standard mileage rate is 65.5 cents per mile, every driver, regardless of location, would receive the same rate. In contrast, FAVR recognizes the inherent disparities in expenses based on geography. By considering factors such as cost-of-living variations, driving conditions, fuel prices, and other location-specific factors, FAVR programs ensure that employees are reimbursed more fairly. This geographic specificity of FAVR programs ensures that employees are reimbursed according to the actual costs they incur, considering each region’s unique challenges and expenses. 

Data sources: how to design rates

Access to comprehensive and up-to-date data feeds ensures that rates are appropriately designed and reflect the expenses incurred by employees in different geographic regions. Cardata offers valuable insights that simplify the rate design process, making it easier for businesses to establish fair and customized reimbursement rates for things like localized fuel expenses. Incorporating reliable regional data into the rate design process is essential for creating a reimbursement structure that aligns with the specific costs associated with each geographical area. By leveraging reliable sources of info, the complexities of rate design can be overcome to ensure that the reimbursement rates within a FAVR program accurately reflects the expenses incurred by employees. 

To make sure that they are getting the best rates, many companies have turned to FAVR software to help them perform their FAVR rate computations.

Conclusion

FAVR programs offer a geographically tailored approach to vehicle reimbursement, ensuring fair compensation for employees based on their specific location and driving requirements. By considering factors such as company-specific policies, mileage calculations, and vehicle-related costs, FAVR programs provide a comprehensive reimbursement structure. Determining fixed and variable rates within FAVR programs considers the actual geographic location of employees, allowing for a more precise allocation of expenses. 

Furthermore, the popularity of FAVR programs in states like California, Florida, Georgia, North Carolina, Ohio, Tennessee, and Texas highlights their effectiveness and benefits across diverse industries and regions. With FAVR programs being exclusively available in the United States, employers can make use of reliable data sources to design rates that align with the actual expenses of driving for business purposes. As employers continue to embrace FAVR programs, it is evident that this geographical approach to vehicle reimbursement has revolutionized the way organizations compensate their workforce, providing a more precise, compliant, and equitable reimbursement solution for employees across the country.

Sources

[1] IRS Rev. Proc. 2000-48 

[2] Automobile allowance rates – Canada.ca 

^{Disclaimer: Nothing in this blog post is legal, accounting, or insurance advice. Consult your lawyer, accountant, or insurance agent, and do not rely on the information contained herein for any business or personal financial or legal decision-making. While we strive to be as reliable as possible, we are neither lawyers nor accountants or agents. For several citations of IRS publications on which we base our blog content ideas, please always consult this article: https://www.cardata.co/blog/irs-rules-for-mileage-reimbursements. For Cardata’s terms of service, go here: https://www.cardata.co/terms.}