OTA pushing for tax changes for trucking industry

The Ontario Trucking Association (OTA) wants Queen’s Park to make a couple of changes to its tax structure to address industry issues.

The association has long voiced concern that service industries like trucking, pay more tax on business inputs than other Ontario sectors and competitors from other jurisdictions. Twenty-seven US states, mainly in the Northeast, exempt trucking equipment, parts and repairs from sales tax.

Last October Ontario chose implemented a recurring sales tax — the Multi-Jurisdictional Vehicle Tax (MJVT) — for truck tractors that operate in multiple jurisdictions and are therefore registered under a North American vehicle registration compact, the International Registration Plan (IRP). As a result, provincial sales tax on tractors that cross provincial/state boundaries is now applied on a decreasing annual basis as opposed to 8% up front. The tax is applied to tractors only, although the rate incorporates an amount to reflect the trailer and parts component. Trucks used exclusively in Ontario are not covered by the MJVT.

The motivation for the MJVT had more to do with stemming a revenue leakage following the demise of the Interprovincial Sales Tax Arrangement, than addressing the trucking industry’s concerns, the association says. Nevertheless, it is anticipated that the MJVT will have beneficial tax consequences for some trucking entities.

However, problems with the way the MJVT was implemented need to be corrected, the association says. Specifically, Ontario recognized that sales tax had already been paid on existing tractors and introduced a partial credit for those taxes. The province recognized that there was a transitional inequity created by applying an annual tax remittance on an expenditure that has already been taxed up-front. However, no such credit was granted for taxes paid on trailers, creating a situation of double taxation.

There is also considerable confusion over the practicality of allocating sales tax between two separate tax-remittance systems in companies that operate IRP and Ontario-only fleets. When purchasing parts, repairs or accessories for trailers, carriers must remit sales tax to the province based on a "reasonable" allocation formula. However, what a trucking company deems to be "reasonable" may be subject to review and amendment during a Ministry of Finance audit. This also places a significant new burden on Ministry of Finance audit resources that could be deployed more effectively, the OTA says.

As a result of the above, OTA is calling for the Standing Committee on Finance and Economic Affairs to recommend the following:

1. Transitional Trailer Credit — Introduce a transitional trailer credit, similar in design and policy intent to the tractor credit.

2. Expand Tax Base to Include all Ontario Heavy Trucks — Introduction of a revenue neutral MJVT collection mechanism for all Ontario-plated commercial vehicles over 11793 kgs.