Tax nexus principles for Trucking

Here are the basic principles of tax nexus for the trucking industry:

• State of Incorporation has automatic nexus
• Trucking businesses provide a service, which is not a generally protected activity under Public Law 86-272
• The Supreme Court has given states authority to tax interstate carriers for fair and reasonable compensation to the State for services and benefits provided for use of the highways.
• Companies using independent carriers do not establish nexus, but the individual carriers may
• Most states provide a “minimum highway use” threshold that must be met before nexus is usually established:
• Two-thirds of states indicate that nexus is created by trucks passing through on a “regular basis”. But, most states don’t define “regular basis”
• The Multi State Tax Commission (MTC) has adopted a regulation that define the de minimis rule as being less than 12 trips into state, totaling less than 25,000 miles and 3% of total miles, with no in-state pickups.
• Pickups and deliveries within the state often supercede de minimis rules for nexus purposes
• Backhauling frequently establishes nexus.
• New York will not assert nexus for backhauling unless those activities produce 4% or more of NY-related revenues.
• In a few states, when nexus is established, it may create Use Tax obligations for the use of trucks making deliveries in the state.
• Failure to file state tax returns can result in delay of goods, seizure of cargo and equipment, and penalties
• States often receive regulatory information, such as fuel tax filings, which can lead to arbitrary assessments of income tax.

WHAT TO DO

1. Incorporate in a state with no corporate income taxes,
2. Apply de minimus rules of MTC,
3. Allocate taxable income among the states where nexus is established, and pay those taxes, and
4. Allow remaining income to be allocated to Nevada.

Tags: trucking, backhauling, multi-state taxation, interstate commerce, multi state tax commission