OOIDA class action takes a bite out of New York HUT costs

By Sandi Soendker, editor-in-chief

A substantial number of trucking businesses using New York highways will be positively affected by a court decision handed down on Jan. 22. OOIDA's class action lawsuit against the New York State Department of Taxation and Finance has been resoundingly decided in the favor of the truckers by the state's Supreme Court, which is the state's trial court.

The lawsuit challenged certain truck tax fees as unconstitutional and discriminatory against out-of-state truckers who have paid the taxes in order to do business in New York. Without a trial, the court agreed.

Attorneys for the Owner-Operator Independent Drivers Association filed the complaint in the Supreme Court of the State of New York, County of Albany in the fall of 2013. The action named the defendants as the New York State Department of Taxation and Finance; Thomas H. Mattox, individually and in his official capacity as commissioner; the state of New York; and Andrew Cuomo, individually and in his official capacity as governor of the state of New York.

Named plaintiffs in the case are OOIDA and OOIDA Members Bryan Spoon doing business as Spoon Trucking, Steve Bixler, Jack McComb and William "Lewie" Pugh.In September 2014, the court approved a class action.

The class action lawsuit challenged the constitutionality of taxes that impose $15 for a certificate of registration and a $4 decal charge on all trucks using New York state highways. The taxes are imposed not only on New York-based trucks, which are driven proportionately higher miles in New York, but also on trucks based outside of New York, which are driven mostly in states other than New York.

OOIDA argued that trucks owned and/or operated outside of New York travel fewer miles on New York highways than trucks owned and/or operated in New York. The imposition of the challenged fees results in a higher per-mile cost being imposed on out-of-state trucks. OOIDA charged this constitutes an undue burden on interstate commerce in violation of the Commerce Clause of the U.S. Constitution.

The court concluded that the registration fee and the fee for the decal proving registration was paid were plainly discriminatory because they had the practical effect of imposing a cost-per-mile tax on out-of-state trucks that is approximately five times as heavy as the cost-per-mile tax borne by local trucks.

The defendants strenuously argued that the amounts at issue were not worthy of constitutional consideration, but the court was unpersuaded, upholding that the fees, no matter what the dollar amount, must not have a discriminatory effect on interstate commerce.

The state also argued that it could not apportion the flat tax without "enormous and costly administrative burden." The court rejected that argument, too, stating that each carrier is already under a burden to report annual mileage traveled in New York and the "administrative machinery is already in place to apportion the amount each carrier owes for highway use tax (HUT), based on miles traveled."

Acting Justice James H. Ferreira declared the fees unconstitutional and therefore invalid. The court further ordered the defendants permanently enjoined from implementation and enforcement.

OOIDA's action also asked for refunds and other appropriate relief on behalf of the plaintiffs. OOIDA President Jim Johnston said the court has directed the parties to submit a memorandum regarding damages, class administration and attorney's fees within 60 days. Johnston said the award could be as much as $30 million when the final numbers are calculated.

"A number of similar flat tax and fee cases were fought against states back in the '80s and '90s, and the states lost every one of them," said Johnston. "Given that history, we were shocked that New York even thought they could get away with these discriminatory fees. The amount for the New York HUT certificate and decal is $19 altogether, which is not huge, but if other states were to implement these fees, it would be huge collectively. To say nothing about the administrative costs involved."

OOIDA's legal action represents a class of all interstate motor carriers who reside and operate trucking equipment primarily outside New York who have paid or will pay the taxes.

OOIDA's business services department is reminding small-business truckers (nonresidents of New York and residents alike) that although the New York HUT's certificate and decal fees are enjoined, effective now, the N.Y. highway use tax still needs to be paid. The certificate is still being required, but non-resident applicants are not being charged for it.

OOIDA advises that the New York decal be kept until further notice. LL