Opinion: Trucking Is Still Overtaxed

This Opinion piece appears in the Nov. 12 print edition of Transport Topics. Click here to subscribe today.

By Matthew Bowles

President

National Fleet Services LLC

This column is an update of one I wrote for this publication a half-dozen years ago under the headline “Trucking Is Overtaxed” (2-6-06, p. 9). As the only slightly altered headline above says, taxes still cost the trucking industry far too much.

In fact, legislative and regulatory changes since 2006 suggest that revisiting the topic would be worthwhile as we try to understand why federal and state tax liabilities continue to rise more rapidly for the trucking industry than for the air and rail carriers with which it competes.

For starters, motor carriers do not enjoy some of the benefits offered to air and rail carriers as a result of Federal Law 49 U.S.C., which can reduce income and operating taxes imposed at the federal and state levels. Furthermore, motor carriers face increasing permitting, registration and compliance costs.

Whether your company is a private, common or contract carrier, you pay operating taxes even when you are losing money. These taxes include excise, sales, use, motor fuel, property and franchise taxes, plus unemployment compensation, unclaimed property and registration and permitting fees.

All these operating taxes and fees come after the motor carrier already has paid unified carrier registration fees, international registration plan fees, mileage permitting fees and weight-distance permitting fees.

For good examples of this trend, we can look at Georgia and Virginia as two among the many jurisdictions indirectly increasing the cost of taxes and fees on motor carriers.

In Georgia, House Bill 386 amended the Official Code of Georgia relating to property taxation, sales and use taxes on certain motor vehicles, and motor vehicle titling ad valorem fees. In the first reading, the good news is that H.B. 386 provides for an exemption from sales and use taxes, with respect to certain sales or purchases of certain motor vehicles, and provides an alternative to paying ad valorem taxes on motor vehicles.

In the second reading, as a trucking company you realize that, as it relates to sales tax on the sale or purchase of motor vehicles, this is no benefit for common carriers that operate in interstate commerce because common carriers currently enjoy the benefit of a sales-tax exemption on the purchase of tractors and trailers.

Upon the final reading, you might not be surprised to learn that the revenue raiser within H.B. 386 comes at the expense of the trucking industry and those who title motor vehicles in Georgia. Effective January 2013, the “alternative state and local title ad valorem tax fees” will go into effect. This simply means that motor carriers will enjoy the benefit of the eliminated ad valorem on motor vehicles by paying an additional 7% to 9% title ad valorem tax fee upon the titling of the motor vehicle.

A motor carrier will need to keep a tractor a minimum of six years just to break even on the “alternative ad valorem fee,” not to mention the additional cash outlay on the front end of the purchase.

In addition, truck leasing companies will pass on the cost of the “title ad valorem tax fee” within the cost of a lease, but they also will pass on the Georgia use taxes imposed by H.B. 386 on the lease of motor vehicles to motor carriers.

In short, for a motor carrier leasing a motor vehicle in Georgia, taxes and fees potentially will increase by 16% — the 7% to 9% title ad valorem tax fee plus the loss of the 7% sales tax exemption for common carriers as imposed as a use tax on leasing companies.

In Virginia, a ruling of the Tax Commissioner [No. 12-90, June 5, 2012] stripped truck and trailer leasing companies of the resale tax exemption for the purchase of repair parts installed on the equipment in which the lessor is obligated under the lease agreement to make repairs.

Virginia repealed the sales tax exemption for common carriers of property by motor vehicle in 2007. However, the sales tax exemption remains in place both for common carriers of property by air and by railway. That means any motor common carrier leasing tractors or trailers that have repairs made in Virginia will pay sales taxes on those repairs.

To further the point, take a look at the state of Alabama.

First, certain transactions relating to transportation equipment are exempt from Alabama sales and use taxes. These exemptions include the purchase of railcars by trucking’s competitors. Not only that, but aircraft delivered in the state are not taxed if they are not permanently domiciled in Alabama and are removed from the state within three days of delivery.

Second, when trucking’s competitors purchase parts and supplies for aircraft used by air carriers with hub operations in Alabama, those transactions also are exempt.

Finally, consider the April 18 decision made by the Alabama Department of Revenue, Administrative Law Division, in the matter of Boyd Bros. Transportation Inc. v. Alabama Department of Revenue. In that case, interstate motor carrier Boyd Bros. was subject to the state’s tax on the use of tractors and trailers within its borders, even though not all tractors and trailers in the audit period were purchased in Alabama.

Clearly, motor carriers are at a competitive disadvantage when purchasing transportation equipment — at least when compared with air or rail carriers.

What can be done? Motor carriers, along with state motor trucking associations, American Trucking Associations, the National Accounting & Finance Council and industry consultants should keep working to level the playing field by educating lawmakers and implementing tax-planning strategies that will make motor carriers more competitive with air and rail carriers.

National Fleet Services, Cumming, Ga., provides customized solutions to U.S. and Canadian commercial fleets, and services including fleet titling, registration and permitting; driver qualification; and cost reduction.