ATA Asks Congress to Prohibit States from Taxing Nonresident Carriers

This story appears in the May 14 print edition of Transport Topics.

Congress should pass legislation to prohibit states from imposing business taxes on for-hire interstate carriers unless the carriers have real property in the state or received operating authority from it, American Trucking Associations told the U.S. Senate Finance Committee.

The trucking industry “faces a serious threat of disproportionate compliance costs” because of business taxes levied by states in which trucking companies do little or no business, ATA said in written testimony submitted for an April 26 committee hearing on state tax issues.

The accounting and other compliance costs associated with such state income or corporate taxes are a burden to an industry made up of small businesses operating an average of six trucks, ATA said.

“The typical smaller trucking operation has but one place of business — in its home state — and has no property or payroll in any other jurisdiction,” ATA said.

In the testimony, ATA described the scene in some states — such as New Jersey — where an agent of the state division of taxation goes to a rest stop or a shipper or receiver’s loading dock, approaches a trucking operation that only rarely runs in the state and demands payment of current and past years’ worth of state corporate taxes.

“The truck and cargo is im-pounded, the driver is told to contact the company and that the truck will be released only when the money is wired to the state,” ATA said.

“There is evidence that New Jersey has assessed some 40,000 interstate motor carriers in this manner over the last five to 10 years, most of them small businesses,” ATA said in its statement.

New Jersey does have an appeal process a carrier can initiate once the tax has been paid, but ATA called the process “long, laborious, expensive and uncertain.”

Some states send questionnaires to thousands of trucking firms asking them to describe their runs and the frequency that they occur in that state.

Carriers that answer the questionnaire are then sent a bill for back business taxes, plus penalty and interest.

“Particularly for smaller motor carriers, this is a cruel absurdity,” ATA said, adding that such an “unanticipated assessment for back taxes frequently represents a disaster” for a carrier.

In another example of why business taxes should not be imposed on carriers doing little business in a state, ATA cited recent instances in which truckers suffered as a result of state rivalry.

In 2009, Colorado adopted a resolution that “encourages the Colorado Department of Revenue to increase its enforcement of Colorado business taxes against carriers based in states that have ‘unreasonably’ burdened Colorado” carriers, ATA said.

That same year, South Dakota passed a resolution calling on Nebraska to “provide tax relief and amnesty” to trucking companies based in South Dakota.

In the face of such state action, “a federal solution is needed. The current economic times only make this more urgent,” ATA said.

ATA also said in its testimony that there is a 1959 federal statute — the Interstate Income Act of 1959 — designed to allow carriers and other business companies to go into a state to sell goods or services without being subjected to a net income tax.

However, the law never really met truck companies’ need for protection, and in the ensuing decades, states chipped away, via court cases, at the protections originally contained in the statute, ATA said.

Thus, a new federal law is needed that “will leave the vast majority of motor carriers to report and pay business taxes only at home, and . . . leave the aggregate state taxes collected from the motor carrier industry as a whole substantially unchanged,” ATA said.