What Is a Commercial Car?

According to the United States’ Small Business Administration, there are 31.7 small businesses in the United States. With an adult population of 259,393,206, that means about 12% of the US adult population owns a small business.  As a small business owner, it can be hard to determine when your workday ends and your personal life begins. It can also be difficult to know when your vehicle goes from being a personal vehicle to a commercial vehicle. This is particularly important to distinguish for your insurance company as rates may be different depending on how your vehicle is classed.

What’s the Difference Between a Personal Vehicle and a Commercial Vehicle?

Typically, a personal vehicle is considered to be any vehicle that has a primary use for the private purposes of its owner or anyone else authorized by the owner for private use without paying a fee. If you use your vehicle for personal use and for your small business, you may have the car insured through personal auto insurance. However, in the event of an accident, your insurance may not pay your damage claims if they determine it to be a vehicle that was being used for commercial use.  One example of this concerns ride-share employees. When a person uses their personal vehicle for ride-share, while a passenger is in the car, the owner as a subcontract worker has coverage under the company’s insurance.  When the subcontract worker does not have a passenger but is available to provide services, there is a gray zone of coverage. Is their vehicle private or commercial at that time? Clarification with your insurance company is key to knowing when you’re protected or what additional coverage you may need. If you and your insurance company aren’t in agreement before a claim, you can end up financially responsible for the damages or losses.  If your vehicle serves you personally and commercially, it’s advisable to talk to your insurance agent to be sure you’re covered. An understanding of what’s considered a business-related purpose will help you know if it’s time to have that conversation. Also, knowing if your vehicle is considered a personal vehicle or a commercial vehicle will help you make decisions about your insurance needs when you rent a vehicle on your next business trip.  A commercial vehicle is any vehicle that’s being used to transport goods or provide services or transport paying passengers. If you’re unsure if your purposes qualify as business-related, let’s look more in-depth at what that means.

Are You Using Your Vehicle for Business-Related Purposes?

Here are some things to ask yourself about your vehicle:

• Is it used to pick up or deliver any goods?
• Do you use it to provide a service for a fee?
• Is it used to travel to work locations or between work locations?
• Do you use it to visit client locations?

For example, if a small business owner runs a cleaning service, the owner may use their vehicle to transport cleaning supplies and work at various client homes and businesses throughout the day. When they’ve finished cleaning for the day, they may continue to drive the vehicle to do their personal activities like grocery shopping, vacations, or running other personal errands. Is the vehicle a personal vehicle or a commercial vehicle? To further examine the status of the vehicle as personal or commercial, here are some more things to consider:

• Is the name of the owner on the title of the vehicle a business? (Incorporated, unincorporated, or LLC)
• Is the vehicle leased or rented by other users?
• Do you drive the vehicle for business and personal use consistently?
• Do you use the vehicle primarily for one or the other? Is it equal use for each purpose?
• Do you allow other employees to drive the vehicle for business purposes?

If the use of your vehicle for business use is minimal, your personal auto insurance could be sufficient coverage. However, to protect yourself, you may need to specify this occasional use when you apply for auto insurance. As previously stated, it may be best to talk with your insurance agent instead of assuming that your vehicle doesn’t need to be covered as a commercial vehicle.  If you are not the owner of a small business but use your vehicle for work, you will want to keep track of your use for personal and business. This will allow you to make deductions on your taxes at the end of the year. If your company doesn’t reimburse you for your mileage at the standard IRS mileage rate, keeping track will help you at tax time. Just remember that this situation doesn’t make your vehicle a commercial vehicle. It is still primarily personal, but again, talk with your insurance agent to be sure.

What About Rental Cars When You’re Traveling?

Traveling for business is not uncommon. It’s also not uncommon to combine professional and personal trips. If you have to travel to Orlando, FL, for a work conference, it’s possible you may decide to take a trip over to one of the many theme parks in the area while you’re there for fun.  While combining your trips can be fun, it can be difficult to know if your rental car is your personal vehicle or a commercial vehicle. And, just as you want to make sure you have the right coverage when it’s your vehicle, you need to know what kind of coverage you should have for your rental car.  Just like the vehicle you own, if you are using the rental car for purposes like picking up or delivering goods, charging a fee for a service you are using the vehicle to provide, traveling primarily to or between work locations, or using it to visit clients, your rental is clearly being used for company purposes.  For this instance, you’ll still want to check with your private auto insurance to see if your rental car will be covered for your trip. If not, you may choose to add the insurance offered by the rental car company and simply keep a record of the expense to see if it qualifies for a tax exemption later.  Since your name and your small business can’t be on the title of your rental car, it’s safe to say that your rental car is not a commercial vehicle. Just remember to check with your insurance to be sure that you’re covered and enjoy your rental car, the little stops along the way, and the business of your trip.

Summary

In the world of small businesses, the line between personal and business can be rather hazy. One of the things you can do to clear up that confusion a bit is to learn whether your vehicle is considered a personal vehicle or a commercial vehicle. Knowing this distinction will not only help you choose the right insurance policy for your everyday use, but it will also help you make decisions on what to track for your tax deductions and the proper insurance to choose for your next car rental if it’s for business.  Sources: Frequently Asked Questions About Small Business, 2020 | CDN Standard Mileage Rates | IRS Topic No. 510 Business Use of Car | IRS