Publication Details

New Michigan Taxes for Trucking Companies

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Article Originally Published: November 2007

The information contained in this article is not intended to be legal advice. Readers should not act or rely on this information without consulting an attorney.

As has been widely publicized, Michigan has recently enacted several new taxes which are applicable to businesses. While the trucking industry has avoided some of the major negative impacts of these taxes, the new taxes create new questions and impose new tests on trucking taxpayers.

The New Michigan Business Tax

The Michigan Business Tax (MBT), which replaces the much maligned Single Business Tax (SBT), has two components which are applicable to transportation companies: a business income tax (BIT) and a modified gross receipts tax (GRT). The MBT takes effect on January 1, 2008.

The Business Income Tax (BIT) is imposed at a rate of 4.95% of taxable business income. The BIT tax base is intended to be much more in line with federal taxable income than was the SBT. Noticeably absent is the much derided addback for compensation and certain fringe benefits, which was a unique feature of the SBT.

The Gross Receipts Tax (GRT) is imposed at a rate of 0.8% on a tax base consisting of gross receipts or revenues less purchases from other firms. The definition of gross receipts excludes certain sales of capital assets, and provides specific rules for several industries.

For trucking operations, both the GRT and the BIT tax bases are apportioned between Michigan and other states based upon the new concept of a "revenue mile." A "revenue mile" is defined as "the transportation of 1 net ton in weight or 1 passenger the distance of 1 mile." Receipts from transportation services are to be "proportioned based on the ratio that revenue miles of the person in this state bear to the revenue miles of the person everywhere."

No additional guidance is provided to flesh out this new concept of revenue miles. However, the Act does provide that "if a taxpayer can show that revenue mile information is not available or cannot be obtained without unreasonable expense to the taxpayer," the taxpayer can apportion revenues between Michigan and other states based on miles alone. Notwithstanding, the Michigan Department of Treasury in that situation "may use other available information that in the opinion of the department will result in an equitable allocation of the taxpayer’s receipts to this state."

New 6% Tax on Services

In response to budget difficulties, the Legislature expanded its 6% sales and use taxes to cover certain services. While general trucking services were spared, numerous transportation-related services were not. Most of the actual services subject to the taxes are defined by the "NAICS codes" published by the federal government.

Some newly taxable transportation related services are clear; others are not. Courier and messenger services are taxed, with a suggestion that the line dividing these services from "truck transportation" is whether freight is palletized. Private and public warehousing services are taxed, as are mini-warehousing and self-storage warehousing. Taxi services, including certain related dispatch and fleet operation services are taxed, as are limousine services and armored car services.

A hidden tax area is transportation consulting services. Newly taxable services include such services as customs consulting, freight rate auditing, freight traffic consulting, logistics management consulting, tariff rate consulting, transportation management consulting, and numerous other specific categories related to process, physical distribution, and logistics consulting services. No guidance is provided in the Act as to how such services are to be taxed if they are combined with nontaxable services for a single fee.

A taxpayer who does not currently hold a sales tax license must register with the Michigan Department of Treasury if the services which it provides are subject to the tax. The new legislation takes effect on December 1, 2007.