Multi State Taxation

Multi State Taxation
Post by Jeff Lovelady, CPA

I am amazed at the amount of times I run across trucking companies that have no idea that they should be filing “income tax” returns in states other than where they are domiciled. This is NOT in regards to IFTA tax. They seem to believe that I am referring to IFTA tax. So just for your information, states have various definitions on what qualifies as “doing business” in their state or another term that is often referred to is having “Nexus” in the state. Now all this means is that you are required to file an income tax return in the state apportioning your income based on the states apportionment rules. Also, in order to file a return or do business in a state, you have to be registered to do business in that state. This is NOT your authority that you renew every year. This is a registration of your business with the department of revenues of the various states in which you have Nexus. Most of the time you have to file an annual franchise tax report and an income tax return. This is not an additional tax over and above your resident state income tax. I would guess that if you do not know about this that you are not apportioning your income to your resident state in which case, if you are “caught” doing business in another state and that state determines that you have Nexus, then it would be an additional tax since you have already reported and paid income tax to your state on 100% of the revenue. I kind of went around the world on that statement. Most of the time what we see is that the trucking company files a franchise tax return, pays the minimum and files an income tax return and pays a small amount. Now what I would propose is that the various state trucking associations and the American Trucking Association get together and put together some sort of plan and one authority like IFTA so the trucking companies can file one return with that authority and then the proceeds would be split to the various states based on a revenue apportionment factor. That would get everyone a fair share of the tax and not cost the trucking company in tax preparation fees to prepare the various state returns. Often times we prepare these returns and the client owes no tax, however, if they do not file the return, then the states will usually assess them a minimum tax and then they will have to get the CPA to write a letter or prepare a return explaining why they do not owe the tax. In some instances, (New Jersey) we have seen states impound trucks and assess a minimum tax for 10 years and require the company to pay the state a minimum of $10,000 to get the truck out of hock. Then the company has to go back, calculate what they actually owe which 99% of the time is about 25% of that amount plus accounting fees to prepare all the returns.

Do you file multi-state income tax returns? If not, get ready, you will be caught sooner or later. These states are running out of money and looking for revenue. Don’t be surprised to see a state vehicles traveling around to the various weigh stations, toll booths and truck stops writing down names and checking their records to see if you are registered to do business there.

Keep trucking the “Good Stuff”!