SPR 2013 Prime KTC: Motor Carrier Tax Consolidation

The tax filing procedures for each of the taxes (excluding the pump tax, which requires no return) can be complex and confusing. Augmenting this problem is the requirement of quarterly returns for KIT, IFTA and KYU taxes. Tax compliance under current law requires a substantial investment of time and money for both motor carriers and the Kentucky Transportation Cabinet (KYTC). Given the difficulty of complying with the existing tax code, particularly for smaller motor carrier businesses, there are strong incentives for noncompliance or evasion. Indeed, the KYTC estimates noncompliance rates for Kentucky-based motor carriers between 20 and 50 percent of eligible carriers. As a result, KYTC officials want to carefully document existing taxes and detail the problems with the existing system. Next, research should analyze proposals for consolidating taxes to make them less overwhelming for trucking companies, more efficient for the KYTC to administer and increase the revenue base by lowering noncompliance rates. These proposals can be based on prior research done by state analysts or industry experts, or research conducted by other states considering fuel tax consolidation. Kentucky currently has a three-tiered tax structure for motor carriers based in the state. Operators of all commercial vehicles pay a fuel tax at the pump on either gasoline or what is classified as a special fuel (e.g. diesel or biodiesel). Trucks weighing more than 26,000 pounds but less than 60,000 pounds must additionally pay the Kentucky Intrastate Tax (KIT) or the International Fuel Tax Agreement (IFTA) tax, depending on whether the carrier has intrastate or interstate status. Large commercial trucks with a combined licensed weight for 60,000 pounds or more pay a gasoline or special fuels tax, KIT or IFTA tax, and the Kentucky Weight-Distance Tax (KYU).