Spring 2012 issue of Horizons

Automotive – continued

A Look At Trucking: How Local and State Taxes Make for a Bumpy Road

Mobile property (trucks and trailers) and payroll to the drivers are included in the in-state’s numerator of this calculation based on the ratio of mobile property miles in the state to total mobile property miles. A mobile property mile is defined as the movement of a unit of mobile property a distance of one mile, whether loaded or unloaded.

The tax code has become more complex over the years, and state taxes are no exception. As companies grow and expand into new states, they often overlook the impact on their state taxes. In some cases, companies may just believe the state tax laws are similar and attempt to operate under a similar structure as their home state. By doing so, companies leave themselves open to potential tax liability. This article will provide an overview of the special income tax apportionment rules used by transportation companies and also discuss the issues associated with multistate businesses that operate transportation companies in addition to other lines of businesses, including apportionment rules and filing income tax returns on a unitary basis. Most states have enacted laws, which provide for unique, special apportionment formulas for trucking companies to report income among the various states in which they conduct business. Under these laws, the standard three- factor (property, payroll and sales apportionment) formula is modified by basing the computation on the numerator of the ratio of the truck miles in a state to the total trucking miles in all states. Some states have adopted formulas based on revenue miles. In general, the property and payroll factors are the ratios of property and payroll used in the state to all the property and payroll used by the trucking company in its trade or business. A special sourcing rule applies to trucking companies.

With regard to the sales factor, the

numerator is generally the trucking company’s total revenue in a given state as it relates

personal property sales or by using cost-of-performance or market-based sourcing for service income.) Complications arise when the trucking company is operating as part of an integrated group of affiliated multistate businesses. Depending on individual state requirements, companies will have to file on a consolidated basis, separate company basis or unitary basis. Limitations are set by each state regarding which way a company may file. For example, a few states will not allow taxpayers to file as a group unless all members use the same apportionment methodology. All of this could affect the tax liability of your company. States also have increased their discovery activites in identifying companies that have sufficient activity

to all revenue derived from transactions and activities in the regular course of the trucking company’s trade or business. The trucking company’s in-state revenue from hauling includes the entire amount of the receipts from intrastate shipments (i.e., the shipment both originates and terminates within the state) and a pro-rata portion of the receipts from interstate shipments (i.e., shipments passing through, into, or out of the state), determined by the ratio of the mobile property miles traveled by the shipments in the state to the total mobile property miles traveled by the shipments from its point of origin to its destination. The in-state portion of any non-hauling revenues is determined under standard rules used for sourcing sales (i.e., to destination or dock state for tangible

Raise Your Expectations

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