Months of lobbying by the Canadian Trucking Alliance, and governments of Canada and Ontario have culminated with a landmark compromise with Michigan over the imposition of that state's Single Business Tax (SBT) on foreign trucking companies. When passed into law, the agreement likely will, in combination with concessions achieved earlier this year, reduce SBT liability of Canadian trucking companies by about two-thirds.
Earlier this year, the truckers achieved a partial victory when Michigan agreed not to seek retroactive tax payments beyond the beginning of this year and to allow the Canadian truckers to receive credit for their Canadian miles when calculating the pro-rata formula for the tax base.
However, according to David Bradley, chief executive officer of the Canadian Trucking Alliance and president of the Ontario Trucking Association, "the real killer" remained the amount of compensation Canadian carriers would have to include in the tax base. Under the SBT, a full day's wages, salaries, and benefits of Canadian workers that spend any part of a day in Michigan must be added to the tax base.
Under the agreement by the Canadian Trucking Alliance, the Ontario and Quebec trucking associations, and the Michigan Commissioner of Revenue, Canadian carriers can choose one of two methodologies for reducing the amount of employee compensation included in the tax base:
- Reduce compensation paid to employees with contact with the United States by a flat 50%.
- Apportion total worldwide compensation by the proportion of miles traveled in the United States and then by the proportion of Michigan miles over total worldwide miles.
The SBT tax rate (currently 2.1%) will also be reduced by 0.1% per year over the next 21 years until it is completely eliminated.
