Date: June 29, 1999

Primary Author: Scott Beane, CPA

 

Question:

Do out of state trucking activities cause a business to be subject to the income taxes in Mass?
 

Answer:

NO, trucking activities alone will not cause out of state income tax nexus.

In 1997 the MASS Supreme Court in the case of National Private Trucking Council vs. Massachusetts, SJC-07478 Dec 22,1997, ruled that the Interstate Commerce clause dealing with nexus does not distinguish between common carrier and private trucking. As a result, the Commonwealth of Massachusetts is no longer attacking income tax nexus to shipping functions such as yours and has formally published a ruling to that effect.

Prior to the ruling, all of the States surrounding Massachusetts adopted the same rule in order to protect their income tax streams from Massachusetts.

Accordingly, activities restricted to out of state trucking do not rise to a level that makes them taxable for income tax purposes in those states. However, you are cautioned that you must not take orders in any State other than your home state nor provide services (as opposed to products) out-of-state. For example, if a customer is rehabilitating a structure and requires your engineering assistance, you will create income tax nexus if that engineering assistance is provided onsite. Accordingly, such engineering must be performed by telephone or contracted out to third parties when onsite assistance is necessary. The same goes for equipment warranty services. Some states permit a certain number of boarder crossings before they consider such activities rising to a level of a taxable trade or business, and thus it is necessary to familiarize ones self with each state's rules that you are transacting business in.

Since all states are aggressive, it is best to file an income tax return and report no sales in order to begin running the statute of limitations, generally three years. This will at least limit your exposure. It is also necessary to keep well documented records of the purpose of each out-of-state visit by the use of a log or other means. You should expect inquiries from out of state jurisdictions as well as onsite audits.
 

Caution - be advised that sales tax nexus is governed by a complete set of different rules.


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