Want fries with that? States charge drive-through income tax for trucks

By Charlie Morasch, Land Line staff writer | 5/20/2008

Michael Heim was stunned by a letter he received in early March.

Nebraska authorities sent notice that because Heim’s trucks had driven through the state, the Nebraska Department of Revenue was considering levying an income tax on his business, even though Heim had no customers and made no stops.

“We pay our UCR fees, we pay road tax, appropriation fees, part of our IRP license fees goes to Nebraska,” Heim told Land Line.

“We pay fuel tax, and we’re running mostly I-80 which is a federal highway. We don’t do any pickups or deliveries here; we don’t have a terminal in Nebraska. To me, Nebraska is reaching.”

Increasingly, states such as Nebraska and New Mexico are aggressively digging for revenue from businesses small and large that work, operate or merely pass through their borders.

Increased enforcement of pass-through income taxes will likely have a domino effect, as states where trucking companies are based realize they’re losing revenue to other states, said Rick Craig, OOIDA’s director of regulatory affairs.

“This is clearly a burden on interstate commerce that OOIDA believes violates the U.S. Constitution,” Craig said. “The time and cost of filing various state tax returns alone is enough to drive a small trucking company out of business!”

The letter to Heim stated that Nebraska’s Department of Revenue “has sufficient information in its possession to begin an examination of your books and records” for tax information. Revenue Agent Michael Grauf said he wanted Heim to fill out a questionnaire “to determine if further review will be required.”

A few weeks later, a second letter to Heim Trucking stated that, in fact, the state determined the company did owe income tax. A revenue agent told Heim that the Nebraska law allowing the state to collect income tax from trucking companies was approved years ago, but that enforcement is beginning this year.

Nebraska does exempt businesses from the income tax if they make fewer than 12 trips annually through the state, or if their total in-state mileage makes up less than 3 percent of their total mileage.

Such an aggressive collection of business income taxes could be copied by other states.

Heim said he’s been told that any income tax paid to Nebraska could be deducted from his Wisconsin bill – which Wisconsin won’t necessarily be in favor of.

Companion legislation has been introduced in both the U.S. Senate and House called The Business Activity Tax Simplification Act of 2008. The Act would expand federal prohibition against states’ taxation of interstate commerce and would set forth specific standards to determine whether a person has physical presence in a state.

The Act would require states using “physical presence” as a standard for deriving income to limit such taxation to companies that assign one or more employees in the state for more than 15 days each taxable year.

OOIDA supports the legislation, although it appears neither bill will be considered for action soon, according to Rod Nofziger, the Association’s director of government affairs in Washington, DC.

The proposed legislation is being supported also by a laundry list of heavy-hitting businesses including News Corp, the Home Depot and Microsoft. The coalition believe states are unfairly taxing businesses which conduct little or no actual business in their respective borders, and are interfering with constitutionally protected interstate commerce.

Kim Conroy, the Nebraska Department of Revenue’s director of compliance, said trucking companies traveling through and stopping in Nebraska should have been paying their taxes for years.

While many trucking companies have paid business income taxes in Nebraska, Heim’s questionnaire was one of hundreds revealing “gaps in compliance” from trucking companies driving in and through Nebraska, Conroy told Land Line.

“One of the concerns we hear from truckers is, ‘I just have to pay to my home state,’” Conroy said. “Any business that does business in more than one state has to have some realization that when you step foot in that state, you need to see what your tax liability might be.”

Not every truck business that enters the state 12 times, however, owes an income tax.

“I know the trucking industry has been having some hard times,” Conroy said. “For companies that have had net operating losses, they’re not going to owe the state any money, but they do need to file their returns every year to substantiate that.”

Michael Heim said he doesn’t plan on paying income taxes in Nebraska. Heim Trucking already has shifted many routes to go around Nebraska, and Michael said he’ll fight what he considers “double taxation.”

“You and I have to live off our budget,” Heim told Land Line. “Why can’t Nebraska live off their budget without dreaming up ways to tax individuals?”

– By Charlie Morasch, staff writer

Copyright © OOIDA