The Ontario Trucking Association (OTA) is giving a thumbs up to a new sales tax system for trucking equipment that has been announced by Ontario Finance Minister, Jim Flaherty.
All Ontario motor carriers and owner-operators with International Registration Plan (IRP) registered equipment will see the 8 percent provincial sales tax (PST) they pay on new equipment decline by 20 percent to 40 percent in net present value terms. OTA estimates this will result in a saving to Ontario carriers of over $15 million.
OTA President David Bradley commended Flaherty and the ministry staff “for staying true to the government’s commitment to reduce the tax burden on Ontario businesses, and for being receptive to reasonable and well-researched proposals for change.”
Bradley said that he hoped this latest dialogue will open the door to a longer term examination of the way business inputs are taxed in service industries like trucking, as compared to the manufacturing sector, for example.
Ontario’s plans to implement the sales tax were first made known publicly in this past spring’s provincial budget. However, since then, OTA has been consulting extensively with the Ministry of Finance on both the tax rate and the credit system for taxes already paid on existing equipment.
OTA was successful in obtaining an 11% reduction in the proposed tax rate for the first three years, reflecting the amount of additional dollars to be raised from United States carriers. This is revenue neutral for the province of Ontario.
The new rate was announced in a bulletin issued by the Ministry of Finance in August. However, OTA objected to the proposed credit system that appeared in the bulletin because it would have meant higher taxes on existing equipment.
Consultations over the past several weeks have led to the development of a fairer credit system for all vehicles regardless of age. It is expected discussions will need to continue for some time on a host of implementation details, according to OTA.
The association will be holding seminars around the province starting next week to assist carriers in understanding how the new tax will work and its administrative requirements.
Unlike manufacturers who do not pay sales tax on their machinery, the trucking industry still pays sales tax on its business inputs. OTA will continue to work to get the government to recognize this inequity and move toward a harmonized provincial-federal sales tax system.
However, for now, the move to reduce annual pro-rated (recurring) sales tax rates is an important first step towards creating some measure of tax fairness for the Ontario trucking industry, according to OTA.
Bradley said he also hoped that the new approach to sales tax would take some of the bite out of the higher IRP registration fees that many carriers are experiencing. “We told the minister that joining IRP was something that Ontario had to do in order to ensure access to the United States market," he said. "It was not something that the industry wanted to do. The reality was that the full and free reciprocal agreements were under threat of being eliminated. The province and the industry really had no other choice. I think the minister appreciated the distinction.”
On October 1, 2001, Ontario will abandon charging PST on trucks, trailers, and repairs at time of purchase in favour of a new annual pro-rated (recurring) sales tax for vehicles registered under the International Registration Plan. IRP is a North American truck registration fee-sharing compact. Other vehicles such as cars and railway locomotives are not subject to multi-jurisdictional levies.
Under the new annual pro-rated sales tax, an annual “sales tax” will be applied to all IRP registered power units. Trailers and repairs made on IRP registered units will be exempt from sales tax. In addition, all out of province trucks operating in Ontario will also have to pay the annual pro-rate sales tax based on their Ontario IRP miles.