CTA and Ottawa continue fight against Michigan SBT

OTTAWA (July 30, 1999) — The Canadian Trucking Alliance hopes there’s still an outside chance that Michigan will exempt truckers from paying some or all of the state’s Single Business Tax (SBT).

The CTA, the industry’s largest lobby group, and the federal ministries of finance and foreign affairs are reviewing Michigan tax law for technical loopholes that might require legislative amendments to close them. CTA vice-president Graham Cooper said such a situation could open the door to include new language in the amendments that would exempt truckers and other Canadian businesses from the SBT.

Last month, the Government of Canada and the Michigan Treasury negotiated final amendments to the SBT legislation so that Canadian manufacturing companies — specifically automotive industry suppliers — would be taxed in Michigan only in connection with their actual activities in the state, essentially an exemption from paying the state’s SBT.

Similar protection was not given to Canadian trucking firms that drop off or pick up international loads in Michigan or simply transit through.

Michigan intends to impose the SBT on out-of-state companies starting Jan. 1. Moreover, the tax may be applied on a retroactive basis as far back as 10 years.

“Sometimes when sweeping amendments are passed, these changes are incongruous with the intent of the original legislation and must be addressed,” said CTA vice-president Graham Cooper. “If that’s the case — and I’m not sure that it is, but we’ll see — we might have an opportunity to bring some equity to this situation.”

The association has argued that Michigan’s SBT and similar taxes in other states are examples of double taxation, and are inconsistent with the spirit of both NAFTA and the Canada-U.S. tax treaty.

The SBT was introduced in 1976 as a replacement for seven other taxes, including a corporate income tax. A 1997 court ruling in Michigan redefined the state’s nexus standard — that is, the state’s right to impose tax on a business based on the nature and extent of its activities in Michigan.

Among the businesses that will be subject to the SBT are companies that pick up or deliver loads in the state, unless their total annual taxable income from Michigan-based activity is less than $250,000 US. The amount of SBT charged is equal to 2.3% of a tax base comprised of a weighted average of the company’s business income, compensation to employees operating in Michigan, and the cost of Michigan property.

Cooper said the association hoped to have some sort of resolution by the end of August. He added that regardless of the outcome in Michigan, the CTA would study the effects of similar taxes in New York, Pennsylvania, Ohio, and Massachusetts.

Failing a positive resolution in Michigan, CTA executive director David Bradley has urged Ottawa to consider tax credits, or the introduction of a similar tax on U.S. carriers operating in Canada. “In the absence of new tax credits, or an acceptable Canadian tax,” he warned, “the industry will have to apply a surcharge on shipments to Michigan.”