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State Takes Hard Line on Business Mileage Documentation

A recent decision by Alabama's Administrative Law Judge (ALJ) William Thompson upheld the Department of Revenue's strict interpretation of the documentation requirements for business miles. In his opinion (Billy M. and Sandra L. Newman v. Alabama Department of Revenue, Docket 06-115, 4/27/06), the ALJ expressed his sympathy for the taxpayer, who clearly used her car extensively for business purposes, yet ended up with no mileage deduction even though she kept a log showing beginning and ending odometer readings for each day, as well as recording the personal miles driven during that day.

Mrs. Newman was an independent insurance agent in East Alabama, and her job required her to use her car to call on customers to make sales and to collect premiums. For the years in question (2002, 2003 and 2004), she maintained the log described above, and Mr. and Mrs. Newman took a deduction for business miles driven at the standard mileage rate based on the log. The DOR audited the tax returns and disallowed the mileage deductions, saying that the Department had "... not been provided with information to ascertain the amount" of the deduction. The Newman's appealed to the ALJ.

Judge Thompson pointed out that since the deduction for business mileage is "particularly susceptible to abuse", those deductions must be held to a standard of strict documentation showing the exact (1)amount, (2)time, (3)place, and (4)business purpose of the mileage. Although the opinion is not specific on this point, the deficiency in Mrs. Newman's record-keeping apparently was that it failed to list the place and business purpose of each stop she made during her daily travels, and perhaps that she did not note the odometer reading at each stop. It's hard to imagine someone in Mrs. Newman's position taking the time to keep such meticulous and detailed records; but that is apparently what ADOR expects.

In any event, Judge Thompson held that the Mr. and Mrs. Newman were not entitled to any deduction for business miles because they had failed the strict record-keeping requirements of Alabama Code 40-18-15(a)(20). The lapse in record-keeping cost the taxpayers about $3,000 in additional Alabama income taxes and interest for the three years.

This page last updated 5/9/06

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