Fleets Could Face Pitfalls as States Search for New Revenue

This story appears in the Nov. 30 print edition of Transport Topics.

Fleets face new tax liability pitfalls and promises, as more states whose budgets have been battered by the recession seek new revenue sources, industry experts told Transport Topics.

However, companies still can benefit, said Randolph Smith, Grant Thornton transportation industry managing partner, because states continue to dangle tax incentives to locate or do business there.

The potential risks are far higher in the future because state budgets “will be in terrible shape in 2010 and 2011,” said Bob Pitcher, American Trucking Associations vice president of state laws.

“States have used up most of the gimmicks they have to balance their budgets in 2009,” Pitcher said. “The federal government can print money, but the states can’t.”

Besides the new initiatives, fleets face the continuing stream of costs for fuel tax agreements, registration plans and, in some cases, state income levies, as well.

An example of a recent revenue-raising change is Florida, which used to allow faster depreciation and now is separating from federal tax policy in a bid to raise revenue, said Mike Muldoon, tax partner at PricewaterhouseCoopers. Franchise taxes that are charged on unclaimed payments to independent drivers also can be a headache for fleets, Muldoon added.

“This is not a real sexy area, but the law is on the books and enforcement has been lax in some states,” he said.

On the other hand, Muldoon noted, some states, such as Delaware, have cracked down and now count on such taxes to generate a substantial portion of revenue.

States such as Michigan, Ohio and Texas have tried to boost tax revenue by taxing carriers on their gross receipts, or revenue, rather than their income, Pitcher said.

Some also could turn to new types of fuel taxes to raise revenue or lift sales tax exemptions for the interstate for-hire carriers, Pitcher added.

Local governments have gotten into the act in an effort to raise revenue, Pitcher explained, citing efforts in Los Angeles to begin charging fleets that load or unload cargo in the city.

“Even if each one [of the taxes] is a mosquito bite, thousands of them can kill you,” Pitcher said.