Taxing Across State Lines
The changing scenery. Experiencing polar opposite climates in the same day. State-themed rest stops with the best of local vendors. There are multiple benefits to truck drivers crossing state lines daily for weekly routes. But what does this mean for taxes? Filing taxes is confusing enough but adding multiple states doesn’t need to cause additional complexity. Let’s break down how to plan for multiple-state tax to avoid a shock at tax time.
The first step in considering what tax exposures there are as you cross state lines is determining whether your business has Nexus in that particular state;
Nexus is a connection allowing state or taxing jurisdiction to tax a business. Nexus has several factors to consider, including:
- Property located in a state – this includes real estate (own or rent), equipment or inventory
- Employees or independent contractors in a state
- Sales or “doing business”
Exploring the standard for sales or “doing business” as it pertains to the transportation industry is factored by these guidelines:
- Company-owned trucks used to deliver or pick up goods in a state
- Company-owned trucks used to backhaul goods originating in a state
- Company-owned trucks pass through states without pickup or delivery
- Hired unrelated carriers to pick up or deliver in a state
No surprise here – each state has different standards and definitions for Nexus guidelines. Working with a CPA and business advisor that specializes in transportation ensures proper Nexus planning based on the company’s routes.
Here are two examples of the different standards by state:
- Illinois: Nexus is created if a carrier drives through the state more than six times in a year, no pickups or deliveries are required
- Pennsylvania: Nexus is created if one pickup or delivery is made, plus 50,000 miles in Pennsylvania or 12 pickups or deliveries made, and Pennsylvania miles exceed 5% of total miles traveled
Fleet owners should be aware of multi-state Nexus guidelines as some states are proactively approaching drivers to question their activity. In New Jersey, trucks with out-of-state markings have been targeted and stopped on the state’s turnpike and questions regarding the business activity for the company in which is being delivered. If the state believes the company is conducting business in the state and should be filing tax returns, the trucks will be seized and held until a “jeopardy assessment tax” is paid accordingly.
Understanding Nexus terms is not just beneficial for filing taxes but also to ensure the continuation of routes and day-to-day business across state lines. If you have exposure in a state, you’ll want to ensure that you are proactive in filing and paying the appropriate taxes. If you have not been filing in a particular state and get caught later, that state can go back many years and assess unpaid tax, penalties, and interest. Some states have a statute of limitations that can look back seven years, such as Ohio, but others may go back indefinitely.
Contact me today to discuss Nexus further and how it’s applied to your company’s multi-state activities.