Department of State

Utility Tax Savings to U.S. Government for personnel overseas

I suggest the Utility Tax Avoidance Program (UTAP) Administrative Fee for all military, DoD civilians and other qualified U.S. personnel in Germany and other applicable countries be reimbursable.

 

PRESENT METHOD:

 

The UTAP is designed to assist participating employees in obtaining relief from payment of taxes associated with the purchase of electricity, gas, and water.

 

U.S. Armed Forces members (military and civilian) under the Status of Forces Agreement (SOFA) with Germany are entitled to the tax-free

delivery of electricity, gas and/or water, when residing on the German economy. The utilities are taxed at approximately 16% for electricity, 16% for gas, and 7% for water.

 

The SOFA entitles military and civilian personnel to tax-free

delivery of these products and services when residing in economy quarters. The Value Added Tax (VAT) offices, arrange with servicing utility companies that participate in the UTAP to bill without taxes

or authorize a credit for utility expenditures. There is a one-time fee paid by individuals to defray the administrative costs for enrollment in UTAP.

 

Aside from providing tax-relief, the VAT office also acts as the

security deposit with the utility companies. The VAT Office has a contractual agreement with utility companies which states that the VAT Office will cover any unpaid utility bills. Due to this agreement, the utility company will waive any security deposit the utility companies normally charge.

 

At Ramstein Air Base for example, the Employee and Management Services Section, 86 MSS/DPCE, administers the overseas allowances program to include the Living Quarters Allowance (LQA). Participation in the UTAP is strictly OPTIONAL and precludes payment of utility taxes thereby

lowering the cost of quarters paid for by the U.S. Government in the overseas area. Only when the cost of quarters exceed the maximum LQA amount to which an individual is entitled, would the UTAP help to reduce a civilians out-of-pocket expenses.

 

References:

Authority: 10USC Section 3012 and the Supplementary Agreement to the

NATO SOFA. Article 67, Paragraph 3a (a)(i): and USAREUR Reg 215-

6/USAFE Reg 1764. Administration of Value Added Tax (VAT) Relief in

the Federal Republic of Germany.

Army in Europe Regulation 690-500.592, Civilian Personnel Living

Quarters Allowance, which became effective 1 July 2003.

 

PROPOSED METHODS & EXPECTED BENEFITS:

 

The current Department of State guidance does not permit

reimbursement for the UTAP administrative enrollment fee as part of LQA expenses. Since participation in UTAP is strictly voluntary, there

is no incentive for civilians to pay the enrollment fee to

reduce their utility costs (electricity, gas, water) unless they exceed their LQA, because the utility costs are being paid for by the U.S. Government (Air Force or other DoD employer). What incentive do individuals have to pay money out of their own pocket in an effort to reduce a bill being paid for by the Government?

 

OPTION 1:

Most civilians in Germany do not exceed their maximum LQA, so enrollment in UTAP should be made mandatory and the one-time administrative fee should be reimbursable as part of the LQA expenses. The cost benefit of reimbursing this fee far outweighs the savings

generated in reduced utility bills for the government. The administrative fee is based on your pay grade. E4s and below and civilian equivalents pay a $35.00 fee. E5s and above and civilian equivalents pay a $51.00 fee.

 

Utility costs vary due to the size and age of a unit, number of

persons residing in the unit and personal habits, but the average monthly costs based on an "Economy Housing Fact Sheet" by 86 CES/CEH,

dated June 2003 was:

 

Electric $90.00

Gas $120.00

Oil $100.00

Water $15.00 per person

Sewage $15.00 per person

Trash $15.00 per person

 

The utility costs are even higher now in 2010, however, based soley on the average monthly utility cost from 2003, the enrollment fee for UTAP would be recouped in one month. Considering the average civilian tour in Europe is 3 years and may be extended up to 5 years, the VAT savings for utility costs would be realized by the government for several years during the remainder of their tour.

 

OPTION 2:

If the UTAP enrollment fee is not included as part of the reimbursable LQA expenses. Another alternative would be to reimburse this one-time cost as part of the Miscellaneous Expense Allowance (MEA), covered in Chapter 9 of the Joint Travel Regulations. The purpose of MEA is to reimburse various costs associated with an authorized/approved PCS/TCS residence relocation. The MEA already reimburses for costs associated with such things as disconnecting/connecting appliances, equipment, and utilities involved in relocation, and the cost of converting appliances for operation on available utilities as well as for non-refundable utility fees/deposits. Currently the administrative fee is based on your pay grade. E4s and below and civilian equivalents pay a $35.00 fee. E5s and above and civilian equivalents pay a $51.00 fee, but the Utility Tax Avoidance Program is not considered a "non-refundable

utility fee" so it is not reimbursable as an MEA expense, although it is in fact a non-refundable utility expense. Changes to the JTR regulations would be necessary for this to happen.

 

Not just Ramstein Air Base or the Air Force would benefit from these savings, but all military bases within Germany and other countries that allow similiar VAT savings.

 

In order to be implemented, this idea requires a change by the State Department to current regulations.

 

Although, the Air Force provides policy and guidance for overseas allowances to Air Force military and civilian employees assigned

overseas, the Air Force cannot provide the final determination on the reimbursement for the V.A.T expense.

 

Tax-relief for the purchase of goods and services on the German economy is provided by international agreement to official U.S. Forces procurement agencies, but not to individuals. The entitlement

to individual tax-relief is derived from the NATO Status of Forces Agreement (SOFA) Supplementary Agreement (SA), Article 67. This

article entitles tax-relief for goods and services procured by the forces for use or consumption by members of the force, the civilian

component, and their dependent family members. Participation by German merchants and individual members of the U.S. Forces is voluntary except for those cases involving third-party liability claims when German insurance companies are underwriting automobile repair or replacement costs to members of the U.S. Forces.

 

USEUCOM delegates the responsibilities to USAREUR Morale, Welfare and

Recreation (MWR) Fund and USAFE Services Fund activities to govern the program with USAREUR Regulation 215-6 and USAFE Instruction 34-

102.

 

An employee pays a one-time fee of to cover administrative cost to provide an opportunity to obtain tax-relief on individual utility bills. Tax rates currently set by the German Government are as follows: Electricity -16%, Natural Gas -16%, Water - 7%. The V.A.T. program guidance states the military members and DOD employees should include this fee as part of their housing cost.

 

Military members and civilian employees, who PCS to an overseas location, may have to move into an off-base residence and have

expenses towards setting up the new residence. Therefore, to decrease the tax expense, they enroll in the V.A.T program and pay the fee. Employees are being disallowed the reimbursement as they are informed the fee is related to the PCS move and is part of the Dislocation Allowance (DLA) in the Joint Federal Travel Regulation (JFTR) for military members or as Miscellaneous Expenses Allowance (MEA) in the Joint Travel Regulation (JTR).

 

The purpose of the DLA is to partially reimburse a member for expenses incurred in relocating the member's household on a PCS. The purpose of the MEA is to reimburse various costs (moving household

furnishing/appliances and other residence-relocation expenses) associated with an authorized/approved PCS.

 

After reviewing the JFTR and JTR, this V.A.T. expense is not part of either allowance because there are members/employees who may enroll in the program well beyond the PCS timeframe (moving from government

quarters to off-base quarters).

 

Since the member/employee is not allowed the reimbursement with the JFTR or JTR procedures, then these expense could possibly be

reimbursed as part of the Overseas Housing Cost (OHA) for Military members or Living Quarters Allowances (LQA) for civilian employees. However, there would not be an entitlement for military members because they receive a flat rate OHA utility expense amount per month

whether not they use the full amount. As for civilian employees, they are reimbursed LQA on an actual expense basis with taxes as part of the reimbursement.

 

Since the Department of State is the overall authority for overseas allowances for all federal agencies including Department of Defense

(DOD). Civilian employees who are authorized DOD command sponsorship logistic support are entitled to LQA which is a quarters allowance granted to an employee for the annual cost of suitable, adequate,

living quarters for the employee and there family. Those suitable means are rent, which includes heat, light, fuel (gas/electricity), water and taxes.

 

Since civilian employees are reimbursed for foreign government utility taxes under LQA procedures/policy, I am suggesting that the Department of State change their regulation or propose a legislative change to the U.S. Code.

 

I think making the UTAP mandatory and being able to seek reimbursement for the one time administrative fee is a good idea that will result in significant savings across DoD. However, the issues are: the mandatory use of V.A.T., which is currently an optional basis, for the military member and civilian employee with the local German company IAW the NATO SOFA agreement and the reimbursement through the LQA process which is regulated by Department of State.

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Idea No. 2731