SD30 - Taxation of Equipment of Motor Carriers


Executive Summary:
Senate Joint Resolution 366, passed by the 1995 Session of the General Assembly, established a joint subcommittee to study the taxation of motor carrier equipment in the Commonwealth. The joint subcommittee's work focused on the fiscal and administrative burdens of the current tax system on Virginia's trucking industry, the elimination of the rolling stock tax on motor carriers of property, and the implementation of Senate Bill 898 (1995).

The Virginia Trucking Association has cautioned that the Commonwealth's system of taxing the equipment of motor carriers is creating a disincentive for Virginia's trucking companies to base equipment here. Recent changes in the regulatory environment have increased competition within the trucking industry. Trucking companies have unprecedented flexibility in deciding where to base their vehicles and operations.

According for information supplied by the American Trucking Association Foundation, the property tax burden on motor carrier equipment in Virginia is the fifth highest in the country. Virginia's three percent titling tax is also cited as an incentive for trucking companies to title vehicles in adjacent states. Virginia's registration fees and fuel taxes are below the national average.

The burden of complying with Virginia's system of taxing trucking equipment can be as important to motor carriers as the amount of the taxes levied. Differences in administration of the tangible personal property tax can create administrative burdens on companies with equipment based in different localities. Measures such as the rolling stock tax, which require a company to deal with one state agency rather than many localities, and the permanent trailer license place, which eliminates the need to track down trailers to affix renewal decals, are cited as examples of a tax system that limits the taxpayer's administrative burden.

Effective January 1, 1995, federal law prohibits state economic regulation of intrastate trucking. Consequently, certificates of public convenience and necessity may no longer be issued to most trucking companies. As a result, the equipment of eleven trucking companies which had been subject to the rolling stock tax will become subject to taxation by local governments at the machinery and tools rate. The rolling stock tax rate of $1 per $100 of assessed value is lower than the initial effective machinery and tools tax rate in many Virginia localities. In addition to increasing the rate of taxation, the elimination of motor carrier equipment from taxation under the rolling stock tax may increase the administration burden on trucking companies with equipment based in several localities.

Until July 1, 1995, motor carrier equipment (exclusive of that which was subject to the rolling stock tax) had been subject to local person property tax at the same rate applicable to other types of motor vehicles. The 1995 Session of the General Assembly enacted Senate Bill 898, which creates a separate classification for motor vehicles owned or used by a motor carrier and motor carrier transportation property as defined in 19 U.S.C. § 11503a(a)(3). Property in this new class cannot be taxed at a rate higher than that applicable to machinery and tools. Senate Bill 898 will lower the rate at which trucking equipment is taxed in many localities.

This legislation was prompted by an opinion of the Attorney General that a county's practice of assessing personal property tax on motor transportation property at a tax rate than exceeds the local machinery and tools tax rate contravenes the federal Interstate Commerce Act. This federal law prohibits discrimination against motor carrier transportation property as compared with other commercial and industrial property generally.

Commissioners of the Revenue have expressed concerns with the implementation of Senate Bill 898. In addition to reducing revenues, the legislation may cause similar types of transportation property to be taxed at different rates, depending on whether its owner meets the Interstate Commerce Commission's definition of a motor common carrier. In addition, the statute does not provide clear guidance as to what constitutes "motor carrier transportation property."

The joint subcommittee endorsed a proposal to clarify the definition of "motor carrier transportation property" in order to address some of the concerns about the implementation of Senate Bill 898. The joint subcommittee's recommendation limits this classification of property to for hire motor vehicles, trailers, and semi trailers with a gross vehicle weight rating of 10,000 or more pounds used by a motor carrier engaged in interstate commerce. (Appendix F)

The joint subcommittee heard that the application of prorated personal property tax to motor carriers' vehicles creates a significant administrative burden and cost. In response, the joining subcommittee recommended that localities that prorate the personal property tax on motor vehicles be allowed to exclude motor carrier transportation property from their proration ordinances. (Appendix G)

The joint subcommittee endorsed technical changes to the rolling stock tax law. The revisions include eliminating the applicability of the State Corporation Commission's special regulatory revenue tax to common carriers of property by motor vehicle because they are no longer regulated by the Commission. (Appendix H)

The joint subcommittee endorsed a resolution asking the Department of Motor Vehicles to evaluate the issue of permanent license plates for trailers and recommend an appropriate fee for such a plate. The resolution will also direct the Department to (i) evaluate and analyze the fiscal impact of an exemption or a cap on the motor vehicle sales and use tax on heavy duty vehicles and (ii) study the advisability of allowing the acceptance of a valid federal annual inspection in lieu of state inspection for commercial vehicles subject to Federal Motor Carrier Safety Regulations. The Department will also be asked to cooperate with the Virginia Trucking Association and the Commissioners of Revenue Association in their exploration of a centrally administered system for collecting ad valorem taxes on motor carrier equipment. (Appendix I)