An effort to shift how freight is valued for tax purposes as it travels through multiple states appears to be dead.
The Multistate Tax Commission (MTC) rejected an effort at its mid-July meeting to continue the work of a committee that would study greater adoption of the “pick up and deliver” rule. That would be a shift from the existing “mileage rule.”
Under pick up and deliver, the allocation to states of tax payments generated by movement of freight would be based on where freight is picked up and dropped off. That would be a change from the mileage rule, under which the allocation is based on the miles incurred in the transit of the freight from its origin to a destination.
The pick up and deliver rule would favor more populous states at the expense of states that may be geographically large – generating a higher number of transited miles – but not as heavily populated.
Chelsea Marmor, an attorney with the firm of Eversheds Sutherland that represents several trucking companies, said in an email to FreightWaves that a push to have the work group continue studying the rule switch failed before the MTC’s Uniformity Committee. That body focuses on having states adopt uniform taxation of cross-border transactions.
“At the meeting, a motion was made by a representative from Massachusetts for the Uniformity Committee (a committee of the MTC) to ‘direct the work group to draft the alternative rule (pick up and delivery), bring back to the committee at the November meeting, and maintain the mileage rule,’” Marmor said in her email. “The motion failed, meaning that the MTC work group that was looking at the ‘pick-up and deliveries’ rule is no longer working on the draft rule.”
The home page of the MTC’s study of the issues, formally known as the Model Receipts Sourcing Regulation Review Work Group, had not been updated as of Tuesday morning to reflect the decision.
The Uniformity Committee does not have enforcement power, and states can levy taxes as they see fit. For example, Massachusetts taxes freight on the basis of pick up and deliver, rather than mileage. However, California was seen as the primary driving force behind the push to have the Uniformity Committee adopt pick up and deliver as the preferred tax regime, which would benefit it given its large size and its enormous volume of imports that then head to other states.
The end of the effort to switch to a pick up and deliver method will be greeted with relief in much of the trucking sector. In addition to a letter sent to the MTC by Eversheds Sutherland, reflecting opposition to the change from that firm’s trucking clients, the American Trucking Associations weighed in with its opposition in a letter to MTC.
In its letter from July 12, David Bauer, the ATA’s vice president of state and tax policy, said a shift would “ignore what is working now, and also creates the potential for division between states, the very thing the industry avoided” with its earlier efforts at uniformity.
“The majority of member states have no disagreement that the mileage rule is working to service both states and the trucking industry,” Bauer wrote.
The California Trucking Association weighed in with a letter to the MTC opposing the change.
The MTC, if it had made the switch, has no enforcement mechanism. It is designed more to create best practices. States are free to follow those practices – and generally do – as that enables companies in the states but operating across state lines to have a more standardized approach in their tax regimes.
“It’s a real bunch of smart tax people from a bunch of different states,” one participant in the July meeting said, requesting anonymity. “They’ll put their heads together and talk about this for weeks or months.”
Following that, he said, states “can trust that a lot of thought and care went into this model. So it carries some weight.”
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