OOIDA victorious in legal challenge of New York truck tax fees

By Sandi Soendker, Land Line editor-in-chief | Monday, February 01, 2016

A substantial number of out-of-state trucking businesses using New York state highways will be positively affected by a strongly worded court decision handed down in New York on Jan. 22. OOIDA’s class action lawsuit against the state of New York’s 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 highway taxes as unconstitutional and discriminatory against out-of-state truckers who have paid the taxes in order to do business in New York. On Jan. 22, 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 found that a class action was appropriate.

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 taxes results in a higher per mile tax rate being imposed on out-of-state trucks. The Association charged that this constitutes an undue burden on interstate commerce in violation of the Commerce Clause of the U.S. Constitution.

Oral arguments were heard in September 2015. The ruling was made on Jan. 22, 2016.

After hearing OOIDA’s expert witness, 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 taxes, 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 taxes 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 “up to $20 million or so.”

“A number of similar tax 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 this unconstitutional tax. The amount for the New York HUT certificate and decal is $19, which is not huge, but if other states were to implement this tax, it would be huge – collectively and in administrative costs.”

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 that although the New York HUT certificate/decal fees are enjoined, effective now, the NY highway use tax (HUT) still needs to be paid. OOIDA advises that the New York decal be kept until further notice.

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