The imposition of the Michigan Single Business Tax on Canadian trucking companies is a form of double taxation, putting Canadian motor carriers at a competitive disadvantage, according to a study commissioned by trucking industry lobby groups and government agencies.
The report, assembled by Toronto and Detroit-based tax consultants, Deloitte & Touche, concludes that Michigan has failed to safeguard Canadian trucking companies from double taxation through one, or a combination of three mechanisms -- apportionment, treaty relief, and foreign tax credits -- when the SBT is applied to the Canadian trucking industry on Jan. 1, 2000
The apportionment formula used by Michigan -- based on revenue miles -- protects U.S. carriers from double taxation, but imposes a "unilateral burden on Canadian motor carriers."
Canadian carriers do not have tax, treaty, or legal protection from the SBT. Under Article VII of the Canada-US Income Tax Treaty some states have indirectly accepted certain provisions of the Treaty by referencing their state statutes to the Internal Revenue Code, indirectly creating a treaty benefit at the state level. Michigan is not such a state.
Also in the U.S. courts, the SBT has been deemed a Value Added Tax (VAT). As a result, Revenue Canada does not consider the SBT to be an income tax. Therefore, the SBT paid is not eligible for foreign tax credit treatment under Section 126 of the Canadian Income Tax Act.
Released last week, the study was jointly commissioned by the federal departments of transport, finance and international trade, the Ontario ministries of transportation, finance and economic development and trade, and the Ontario Trucking Association (OTA), the Quebec Trucking Association (QTA) and the Canadian Trucking Alliance (CTA).
OTA and QTA, in conjunction with CTA, have engaged a Michigan-based legal firm to assist in lobbying the state government. The Canadian consulate in Detroit along with federal and provincial officials has also agreed to work co-operatively with the trucking associations.