State business taxes hitting Canadian truckers in the wallet

The Canadian Trucking Alliance is calling upon federal finance minister Paul Martin to level the playing field for Canadian companies that face a proliferation of state taxes not covered by the Canada-U.S. Tax Treaty or NAFTA.

CTA chief executive David Bradley asked Martin to explore remedies such as foreign tax credits or a re-negotiation of the Canada-U.S. Tax Treaty to protect businesses against what are known variously as franchise taxes, gross receipts taxes, or single business taxes, depending on the state.

“Canadian truckers could suffer the death of a thousand knives” unless action is taken to protect them, Bradley said.

A growing number of states including New York, Michigan, Pennsylvania, Ohio, South Carolina, and Massachusetts have begun or stepped up collection of these taxes, imposed on a company’s total gross revenues, not profits, Bradley said, resulting in double taxation. A company does not have to reside or conduct a significant amount of business in a state to get caught in the tax net, he said.

The problem, Bradley explained, is that these state taxes are not considered corporate income taxes by Canadian tax authorities. Consequently, they fall outside the Canada-U.S. Tax Treaty and do not qualify for foreign tax credits in Canada, whereas U.S. carriers generally do receive a tax credit from their home jurisdiction for the tax paid in another jurisdiction.

These taxes have existed in some states for many years, but only recently have they begun to be applied to international commerce. New York State was among the first and certainly the most vigorous to go after Canadian companies with its New York State Franchise Tax. In response, the Canadian trucking industry launched an expensive constitutional challenge, contending the tax was illegal under the Foreign Commerce Clause of the U.S. Constitution. Indeed, in 1997, when the challenge reached the appeals level of the New York State Supreme Court, the Government of Canada expressed its concern over such forms of taxation by submitting an “amicus curiae” brief in support of the Canadian companies.

The appeals court upheld the tax, although CTA maintains that the legal underpinning of the challenge is valid. New York did amend its tax law to lessen the impact of the tax and is negotiating a settlement with the Canadian truckers on back taxes owed.


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