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Illinois truckers could face thousands in usage taxes if proposal is passed

Illinois officials are considering instituting a usage tax on trucks, Revenue Department officials have told Land Line.

A trucker purchasing a new tractor for $100,000 would face a tax bill from the state of more than $6,200 under the proposal. A new trailer would add to the tax bill.

Currently, truck purchases in the state are exempt from any sales or usage taxes. Most states exempt truckers from any tax like the one Illinois is proposing.

But Gov. Rod Blagojevich, in his annual budget address to the General Assembly, indicated he would like to end the “rolling stock exemption,” a rule that exempts tractor-trailers and other transportation equipment from the state’s sales tax. The governor referred to the exemptions as “loopholes.”

“Fairness means closing the corporate loopholes that allow corporations to skirt their obligations to the state while regular, hardworking people dig deep into their pockets, week in, week out,” Blagojevich said. “Some business incentives necessary then, aren’t necessary now.”

According to Mike Klemens, a spokesman for the revenue department, and Jerilynn Gorden and Terry Charlton, two state lawyers who Klemens said might help write the new rules, the proposal envisions a usage tax, rather than a straight sales tax. That means if a trucker who lives in Illinois purchased a truck in another state, he would have to pay the tax when he returned to Illinois to register the truck.

It also means that truck owners who move to Illinois also would have to pay the tax, the three officials told Land Line. They would be given credit for depreciation — using a formula that will have to be worked out as the bill is written — and for taxes paid in other states. But if the trucker came from a state with no sales or usage tax, he or she would pay the full 6.25 percent tax on the depreciated value of the truck.

The tax would have to be paid before the truck could be registered, but it would be a one-time tax.

Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, said truckers already faced enough extra costs when they purchased a rig.

“For every new truck that’s sold, there’s a 12 percent federal excise tax,” he said. The tax, he said, is essentially a federal sales tax on trucks 55,000 pounds and above.

“For a new truck with a base price of $90,000 to $95,000, it’s going to have another $11,000 added to the price tag — nearly $11,000 in sales taxes collected at the federal level, right up front,” Spencer added. “We think that’s more than enough.”

Gorden said the Illinois tax would be applied to “basically any tangible personal property purchased by an interstate carrier for hire that’s used to transport people or goods interstate.”

That would include the tractor, the trailer, any auxiliary equipment attached to the truck and replacement parts, Gorden added. The truck would have to be used for at least 15 trips in a 12-month period.

The proposal has not been formally put before legislators yet, Klemens said.

“It has not been reduced to a bill or legislation and there probably remain some questions to be worked out as to exactly how it will be constructed,” he said. “We’re still at a concept stage.”

According to Becky Carroll, director of communications for the governor’s Bureau of the Budget, the state estimates the tax would generate $92 million in new revenue.

State revenue from trucking has been an issue in the Land of Lincoln. For months, Illinois has been locked in a battle with Oklahoma over reciprocal fees paid between states. A significant number of out-of-state truckers had base plated in Oklahoma, where trucking fees have been low, to avoid higher fees in their own states. Illinois had complained about the problem to the International Registration Plan, or IRP, an interstate compact that regulates the reciprocal arrangement.

Meanwhile, while Illinois considers the tax to bring more money into state coffers, other states that have had usage taxes are cutting or eliminating them.

Arkansas recently rolled back its sales tax on trucks to a significantly lower level, leaving truckers with a maximum tax bill of $525. And in Kentucky, which had a usage tax very similar to Illinois’ proposal, the governor recently signed into law a measure that eliminated the tax entirely.

“These kinds of taxes disproportionately burden small-business truckers,” Spencer said. “What the state is most likely to see is not more money, but rather more small-business truckers moving to surrounding states.”

Mark H. Reddig, associate editor
Mark Reddig can be reached at mreddig@landlinemag.com.

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