A Guide to Federal, State, and Local Taxes
Running a profitable trucking company means contending with diverse federal, state, and municipal tax obligations. Navigating complex taxes, due dates, and frequently changing regulations diverts time and resources. This comprehensive tax guide examines the key taxes applicable to the trucking industry across all government levels and provides tips to streamline compliance.
I. Federal Trucking Taxes
From income taxes to highway use fees, trucking companies must grapple with various federal tax filings and payments:
- Federal Income Taxes
Most trucking entities are structured as S-corporations or partnerships, passing income to owners’ personal returns. Income is taxed at individual rates. Hiring a tax professional maximizes available deductions and credits.
- Payroll & Employment Taxes
With employees, truckers must pay payroll taxes like Social Security, Medicare, unemployment and withholding. Independent contractors over $600 in compensation also trigger tax filings like 1099-MISC. Staying current with quarterly filings avoids penalties.
- Heavy Vehicle Use Tax (HVUT)
The HVUT excise tax applies annually to vehicles 55,000 pounds and over, ranging from $100 – $550 per vehicle based on weight class. Fleet managers should factor this recurring tax into operating budgets.
- Federal Fuel Taxes
Fuel taxes are assessed on diesel and gasoline purchases. The federal fuel tax is currently $0.244 per gallon on diesel. Trucking companies can claim fuel tax credits and rebates where eligible to recover a portion of these costs.
- Tire Excise Tax
The federal government levies a small tire excise tax on large truck tires over 40 lbs with rates capped at a maximum of $10.875 per tire. While not a huge expense, it’s an example of the array of miscellaneous trucking taxes.
II. Sales, Use & Income Taxes by State
In addition to federal taxes, interstate truckers must address tax compliance across multiple states:
- Multistate Income Taxes
If conducting significant business across borders, trucking firms may have income tax obligations in multiple states based on apportioned revenue. Working with a savvy tax professional maximizes deductions and credits and avoids overpayment.
- Sales & Use Taxes
While truck transportation services are often exempt, purchases of parts, equipment, and supplies may incur sales/use tax. A careful review of tax codes in each state minimizes erroneous tax payments.
- State Fuel Taxes
Fuel taxes vary widely from state to state to fund highway infrastructure. Compliance for interstate travel involves trip permits, IFTA reporting, or Environmental credits (OH, KY). Careful record-keeping is key.
- Unemployment & Workers’ Comp Taxes
Paying into state-administered unemployment insurance and workers’ compensation programs is mandatory. Rates vary by risk classification, claims history and state.
III. Local Licenses, Property & Other Trucking Taxes
City and county administrations also assess an assortment of taxes:
- Local Business & Equipment Licensing
Cities and counties often require local business licenses with fees based on a number of vehicles, employees, etc. Many regions also impose excise taxes on equipment property.
- Personal Property & Real Estate Taxes
Counties assess annual property taxes on business-owned real estate (yards, offices) as well as personal property like trucks, trailers, equipment, and machinery.
- Tolls & Border Fees
While technically user fees rather than taxes, bridge tolls, highway tolls, and state border crossing fees contribute to the tax bill for many carriers.
IV. Trucking Tax Planning Strategies & Resources
With tax obligations spanning so many jurisdictions, having resources and strategies to simplify compliance is invaluable for truckers:
- Leverage a Specialized Tax EA or CPA
Hiring accounting and tax advisors with dedicated transportation expertise is crucial for navigating industry-specific policies. They maximize savings opportunities through tax code mastery.
- Implement Tax Management Software
Automated tracking, reporting and payments streamline processes. Integration with accounting systems provides comprehensive visibility and cash flow planning capabilities.
- Apply for All Credits & Incentives
Taking advantage of federal tax credits, state tax incentives, and property tax reductions lowers the overall tax burden. The guidelines and applications can be complex making a tax professional advisor essential.
- Structure & Plan for Income Tax Efficiency
Choosing a pass-through entity like an S-Corp provides more flexibility than a C-Corp. For owners seeking to minimize personal income taxes, optimizing distributions of profits/losses and salary levels reduces personal income tax liability thanks to graduated tax rates.
- Leverage IFTA & IRP Membership
Joining the Agreement on International Fuel Tax and International Registration Plan (IRP) facilitates license/tax permitting and consolidates filings into one semi-annual report for all states minimizing admin workload.
While the undertaking of managing taxes may seem overwhelming at times, taking advantage of the strategies and resources covered in this guide will help streamline the process for trucking operators. Working closely with tax preparation experts like the team at Zara Financials guarantees our transportation clients leverage all available tax reduction avenues while ensuring full legal compliance. Reach out today to learn more about our comprehensive tax services for trucking entities.
