STATE TAX & FISCAL UPDATE

Bob PitcherVP, State Laws, ATA

NAFC Annual MeetingJune 17, 2014

Today’s Agenda

• State & Local Government Fiscal Situation• State Tax Changes

– Business Taxes– Highway Taxes

• IRP, IFTA & UCR• Have We Made Any Progress?

State & Local Fiscal Update

Some Trouble Spots

•Detroit•Chicago•Rhode Island•Puerto Rico

Are These Places Bellwethers?

Detroit

• Largest City Bankruptcy in U.S. History• Filed Under Ch. 9 in July 2013• Corruption, Mismanagement, Population Loss,

Unpaid Taxes• $18.5 Billion in Debt• Pensions the Big Issue• Bankruptcy Trial Starts July 2014

Chicago

• Pensions (5 funds) Dragging City Down• 36% Funded – c. $35 Billion Deficit (under

GASB rules!)• State Legislature Controls the Game• Raise Taxes?• Cut Benefits?

Rhode Island

• Pensions Again the Problem• 58% Funded - $4 Billion Deficit (GASB)• Local Pensions All PArt of State Fund• 2011 Reforms• Litigation Arbitration Vote Limbo• Union Opposition• Central Falls Bankruptcy

Puerto Rico

• Small Population & Economy• Subject to Federal Minimum Wage• Government Sector 20% of Employment• Debt $70 Billion – 89% of Personal Income• Junk-Bond Credit Rating – Pension 7% Funded• Not Eligible for Bankruptcy• Analogies to Greece – Bailout Coming?

Are These Places Bellwethers?

• Warnings, Certainly• Extreme Cases, But Suggestive

Danger Signs for Others:• Unaffordable Pensions & Benefits• Bad Politics• Damaged Economies

Some Places Will Follow the Same Path

States Generally

• Most Current Budgets in Decent Shape• Some Spending Increases, But Growth Slow• Some Recovery in Housing Prices• Oil & Gas Boom• Northeast, IL, CA Worst Off, Great Plains

Doing Fine• States Not Well Prepared for Next Recession

Local Governments

• A Real Mix• Few Really Stressed (CA, PA)• Depends Mostly on Local Economies• Mismanagement, Population Loss the Greater

Dangers, Pensions Generally Less Troublesome

• Some Growth in Local Govt. Employment

Government Employment

• Last 18 Months:– Federal Employment Down 3-4% (Retirements)– State Govt. Employment Steady– Local Govt. Employment Up a Bit (Teachers)

• Early Signs of a Flood of Retirements• Turnover Among Younger Workers Also Up• Overall Loss of Govt. Expertise Imminent?

Private-Sector Employment

• %age of “Real” P-S Jobs Gained, 2007-12:– ND, 25% TX, 6% SD, NY, LA, VT, <2%– All Other States Lost P-S Jobs 2007-12

• Statewide %age of “Real” P-S Jobs:– NM, 68% VA, 70% AK, 71%– MS, 72% WY, 73% AL, 74%

• North Central States Have Largest “Real” P-S

Long-Term Challenges

• Pensions & Retiree Benefits– A Mix, But Many Places in Trouble– Reforms Coming Too Slowly– No Easy Choices– Effect on Government?

• Federal Mandates– Health Care: Medicaid Consumes 23% of All State

Spending – Set to Rise– Highway Program Devolution?

Federalism

• Increased Federal Aid to States Now• More Mandates, More Strings• Politics of Changes in Federal Spending• Potential Entitlement Fixes, Tax Reform• Some State Reforms – Enough to Help?• Similar State Local Dynamics• Come the Next Recession….

State Tax Changes

• A Lot Last Year – A Lot Fewer This Year• Elections Coming Up• Few Themes Evident in 2014 Legislation• States Concerned with Highway Funding

Trucks & Roads

• AL property tax MS sales tax• CO sales tax MO sales tax?• GA property tax (‘13) NV fuel tax (’13)• KS property tax (‘12) NH fuel tax• MA fuel tax (‘13) PA fuel tax (‘13)• MI fuel tax? SC property tax?• MN sales tax

General Taxes

• IL increases???• IN corporate income & property taxes• MO personal income & maybe sales tax• NV margin tax• OK personal income tax• TX margin tax?

Update onIRP

IFTAUCR

IRP

• Full Reciprocity Plan

• IRP Membership for Mexico?

• Changes in PRISM

FRP

• Effective for IRP Registrations Beginning in 2015

• ALL IRP Registrants Will Be Registered in ALL IRP States and Provinces

• No More Estimated Distance or Fees • Fees Based, as Now, on Actual Fleet Distance

Traveled• New Carriers Pay a One-Time Standard Fee

FRP, cont’d.

• Change the Biggest to IRP in 20 Years• In Discussion for 30+ Years• All Favorable for Industry (& States)

– Greater Flexibility– Saves Fees for Permits, Added States, etc.– Simpler for States to Manage

Mexican Membership

• New Administration in Mexico

• Mexican Carriers Beginning to See Advantages

• Movement Toward Membership?

• Still Some Years Off

Changes in PRISM

• With URS, FMCSA Drops State Check for MCS-150 Update

• PRISM States to Deny Registration for Code 52• States Can No Longer Assist Carriers with MCS

Updates

IFTA

• Audit & Record-Keeping Rules

• Taxation of Natural Gas

• State Compliance with IFTA Rules

• Electronic Credentials?

IFTA Audit Rewrite

• State & Industry Project (Similar to IRP’s)• Drafting Now Finished – 2014 Ballot• If It’s Accepted, Effective 2016• Flexibility for Distance Records• Few Changes for Fuel Records• Should Help Eliminate Bad Audits• Some Opposition – Industry Support Needed

Natural Gas

• IFTA Adopted GGE Standard for CNG• States Beginning to See n/g IFTA Reports• NCWM Discussions on Metering Standards• An IFTA DGE Standard for LNG?• Reporting Dual-Fuel Vehicles• Adjustments & Confusion Continue

Will IFTA Make Its Members Follow the Rules?

• NJ Debacle• IFTA Dispute Process Flawed• IFTA States Seem Ambivalent• IRP Process Far Better• Industry Message to IFTA Board

Electronic Credentialsfor IRP & IFTA ?

• Committee Discussions Beginning

• A Chance to Eliminate IFTA Decals?

• What Does It All Mean?

• Effect of Federal ELD Rule?

UCR

• States May Collect All Their Money This Year!• Administration Proposes Amendments to Act

– Remove Federal Representation on UCR Board– Incorporation of UCR as Private Entity– New Board Members Chosen by Co-optation– Leave Board (States) to Set Fees

• States May Like These Changes

A LONG LOOK BACK&

A SHORT LOOK FORWARD

Where Did We Stand 30 Years Ago?

• Economic Deregulation Was Recent• Interstate Trucking Was Expanding FAST• State Operating Taxes Were a Crisis for the

Industry• Industry Expertise Assembled

• ATA Taxation & Reciprocity Committee• NAFC Tax Committee• Western Highway Institute Tax Committee

Fuel Use Taxes: The Poster Child

Non-Uniform

Burdensome

Expensive!

Non-Uniformity in:

VehiclesRegistrationCredentials

BondingLeases

Tax ReportsCredits & Refunds

Audit & Administration

What Vehicles Had to Be Reported ?

• All Commercial Vehicles• > 2 Axles• > 7,000 lbs. Empty Wt.• > 10,000 lbs. Empty Wt.• > 18,000 lbs. GVW or 7,500 lbs. Empty Wt• > 16,000 lbs. GVW• > 30 Gallon Fuel Tank Capacity& at least 16 Other Definitions!

What Tax Registration WasRequired?

• Annual, Biennial, or Permanent?• Any Registration Fees? One-Time or Annual?• Fees per Fleet or per Vehicle?• Licenses for Each Place of Business?• When to Be Renewed: October, December,

January, March, April, or July?• Vehicle-Specific Cab Cards?• Account Numbers on the Vehicle?

Credentials (DECALS!)

• 1 per Vehicle – or 2?• On Left Side, Right Side – or Front?• Display Dates?• Annual, Biennial – or Permanent?

• Were There Decal Fees? YOU BETCHA! Charged by 22 states

Bonding

• Required by 19 States

• Various Amounts and Limits

• Required for Refunds in c. 10 More States

• Alternative Security Rarely Allowed

Leases

Who Must Report?– Lessee?– Lessor?– Party Buying Fuel?– Vehicle Operator?– Up to the Parties?– State Permission Needed?– Depend on the Lease?

Copy of Lease Required in the Vehicle?

Tax Reports

• Frequency: Monthly, Quarterly, Annually?• Due Date: 20th, 25th, 30th, Last of Month?

Postmark Honored?• No Uniformity in Format• Computation of Tax Varied:

Vehicles Covered? Formula? State MPGs?Individual Vehicle MPGs?

• Supporting Documentation Required?• Payment in Certified Funds?

Credits & Refunds

• Do Credits Carry Over?

• How Long?

• Are Refunds Available?

• Is There a Minimum Amount?

• Have to Be Audited First?

• Documentation?

• Other Restrictions?

Audit & Admin.

• Record Requirements– Official Fuel Receipts– Original Documents

• Frequent Changes in Requirements

• Rules Inaccessible to Taxpayers

• Multiple Audits Under Different Rules

• LOTS of Gotchas

Recap: Fuel Use Taxes in 1984

• Non-uniform? Definitely

• Burdensome? For Carriers of All Sizes

• Expensive?

US DOT estimated up to

$1 billion a year in administrative

costs for motor carriers

IFTA Began in 1983 with 3 States

Flat Fees

• Charged Mostly for Fuel Use Tax Registration:– AL, CT, DE, FL, GA, IL, IN, KY, ME, MD, MA, MS,

NH, NJ, NY, NC, PA, RI, SC, VT, VA, WV– Most Came with Decals – Often Vehicle-Specific

– ME, NH, VT in RFTA – A Composite Sticker!

• Total Over $320 per Truck per YearATA Had Begun the Scheiner litigation

Vehicle Registration

• IRP Then 10 Years Old– 27 Member States, 1 Province– Reciprocity Miles a Big Issue– Trailer Apportionment, Other Exceptions

• Uniform (Western) Pro-Rate• Multistate Agreement• Bilaterals Galore• Fees for Reciprocity

Bingo Stamps

• Left-Over Regulatory Enforcement Fees• “Money for Nothing”• 39 States Participating• Fees for Regulated Interstate Carriers Only• Enormously Burdensome

– Vehicle-Specific– Licking & Sticking– Complex Reciprocity Arrangements

Weight-Distance Taxes

• FHWA: “The Railroad Tax”• In 1980s Imposed by 11 States:

AZ, AR, CO, ID, KY, NV, NM, NY, OH, OR, WY• Non-Uniform, Burdensome, Expensive, Rife

with Evasion & Exemptions for Locals• Active AAR Program to Spread W/D

Sales Taxes

• 22 States Levied Sales Tax on Interstate For-Hire Rolling Stock

• TX Levied Apportioned Use Tax • MI Intermittently Sought Use Tax as Well• Some Provinces Apportioned Sales Tax• More States Imposed Sales & Use Tax on Parts

& Labor for Rolling Stock

Property Tax

• 19 States Imposed Property Tax on Interstate For-Hire Rolling Stock:– 6 Allowed Apportionment Out– 4 Required Apportionment for All with Nexus

• 7 States Collected an In-Lieu Fee with Registration

Regulatory Fees

• Fees for Intrastate Use of Interstate Equipment ($100 per Vehicle in MI)

• Gross Receipts Taxes (NY, PA, UT)• Intrastate Authority Still Difficult to Obtain in

Some States

How Far Have We Come?

• Fuel Use Taxes? IFTA• Vehicle Registration? IRP• Bingo Stamps? SSRS UCR • Flat Fees? Unconstitutional• Regulatory Fees? Gone• Sales & Property Taxes?

Number of Exemptions Doubled

More Yet To Do

• Repeal UCR (It’s Still Money for Nothing)• There Are Still 4 W/d Taxes (and Talk of VMT)• Sales Tax Exemptions Aren’t Universal• Property Tax Issues Still Exist• Motor Carrier Nexus Issues Need Federal Fix• Eliminate or Reform Credential Requirements• Eliminate the Paper!