Canadian carriers take on the taxman

by James Menzies

TORONTO, Ont. – A group of Canadian trucking companies has won a landmark settlement with Canada Revenue Agency (CRA) that will see up to $15 million distributed to owner/operators who hauled into the US between 1991 and 2002.

About 35 companies were involved in the November settlement and the first cheques are now making their way to owner/operators, many of whom are now retired and caught entirely off-guard by the windfall.

Nolan Transport is one of three Canadian fleets that has received a payment from CRA. In November, Nolan received more than $310,000, with much of that destined for owner/operator pockets. The largest of those cheques is for about $16,000 and is going to an owner/operator who has since retired.

“A lot of the drivers that are benefiting from this haven’t been with us for a few years,” Kelly Nolan, co-owner of Nolan Transport told Truck News. “So, I’m calling people in P.E.I., Elmira…people I haven’t talked to in years. It’s been kind of sweet.”

The massive government payout stems from a long-running court challenge involving the payment of excise fuel taxes on diesel consumed outside Canada. In the early 1990s, Larry Babins, at that time an accountant with Permicom Permit Services and now director of consulting firm Simple Ace, noticed some discrepancies between how excise taxes were applied in various sectors of the economy, and even within the transport industry. As far back as 1880, he noticed, ships leaving England were eligible for refunds on the tax they paid on coal consumed once the ship left the port. He also noticed Canadian manufacturers were given refunds on the excise tax they paid on items destined for consumption outside Canada. Babins felt the same principles should apply in trucking, where Canadian trucking companies would often fill up with fuel in Canada, paying the federal excise tax on diesel before crossing the border into the US.

Eventually, Babins was able to bend the ear of Winnipeg, Man.-based lawyer Israel Ludwig, who agreed so vehemently that he offered to take the case on spec’. In 1998, a court challenge was launched on behalf of more than 100 trucking companies.

“Under the Excise Tax Act, if you are paying excise tax on an item that is subsequently exported, you can get that money back,” Ludwig recalled in an interview with Truck News. “These trucks, after filling up with diesel, were driving into the US. So the question becomes: Is the fuel in the tank of your truck an exported item, such that you can claim a rebate on the tax?”
Not surprisingly, CRA initially denied the claims, but the case was brought all the way to the Supreme Court of Canada where a judge finally ruled in the carriers’ favour. In 2003, 117 carriers shared a windfall amounting to about $12 million on the excise taxes they paid on diesel purchased in Canada and consumed in the US between 1991 and 2002.

The carriers, however, had unfinished business. CRA agreed only to pay the amount claimed for company-owned trucks and would not provide rebates for owner/operators who were working for those same companies.

“They said ‘We’ll pay the money for the trucks owned by the company, but if it’s owned by an owner/operator, the owner/operator should have filed their own application for a rebate’,” Ludwig says. “We said ‘no, no, no – that’s not the industry practice. A company always files fuel tax applications on behalf of an owner/operator’.”

Jim Peacock, vice-president of Nolan Transport, was involved in the case from the beginning.

“CRA’s whole argument was that the owner/operators should be filing on their own, because they’re independent businesses,” he says. “But the fuel is all bought through our fuel tax account.”

Nolan, like many trucking companies, would pay the fuel up front and then deduct it from its owner/operators’ pay – so ultimately the O/O was paying for the fuel.

Still, CRA wouldn’t budge. And for a while, it looked like the owner/operators were going to lose out. But then, Ludwig’s position received a boost when the Supreme Court of Canada ruled in an unrelated case that United Parcel Service (UPS) could collect GST overpayments made by its independent contractors on their behalf. That ruling prompted Ludwig to renew discussions with senior management at CRA, who this time knew they were beat.

“In the end, they eventually agreed that yes, the trucking companies could file tax returns on behalf of their owner/operators,” Ludwig says. “They have agreed to pay that money, of course with interest, to the companies that were affected and that will flow then to the owner/operators.”

How much is at stake? “It’s hard to say, because there’s going to be interest on that,” Ludwig told Truck News. “Maybe as much as $15 million, but we won’t know until all the money comes in.”

In addition to Nolan, Bison Transport and Penner International agreed to be test cases. All three of those companies have now been paid, Ludwig says. Bison Transport is in the process of sending registered letters to the last known addresses of the owner/operators who qualified for the rebates.

Another 35 or so companies will also receive payments on behalf of their owner/operators as well in the weeks ahead.
“Some have to go through further audits. Those cases will wait until the audits are complete and the audits will determine how much they’re getting,” Ludwig says. “The other ones, who already had audits done in 2003 or 2004, will be getting cheques within the next 60-90 days.”

The cheques are issued to Ludwig, who takes his 35% cut before turning the money over to Babins for distribution to the carrier. You don’t need to be a math whiz to realize Ludwig’s share would be enough for a comfortable retirement, but the trucking companies he represented don’t begrudge him.

“It wouldn’t have happened without him,” says Nolan. And in most cases, the interest paid by CRA is enough to cover Ludwig’s fees. That pay arrangement, however, does raise the concern that some carriers may not pass the sum along to the owner/operators it is intended for, especially considering it may take some effort to track down those who may not have worked for the company in more than a decade. Peacock says CRA was adamant the funds be redistributed to the owner/operators, but he worries not all carriers will comply.

“I’m sure there are carriers out there that are going to try to keep the money,” he says, noting many of Nolan’s recipients didn’t even know they had it coming.

“I think what’s really important is to get the word out there,” says Nolan. “If there are owner/operators out there that went cross-border between 1991 and 2002, they should be contacting their company to see if there’s a fuel tax rebate for their truck. It doesn’t hurt to ask. If a company doesn’t have a clue what this is about, they’ll say ‘no.’ If a company does know, hopefully they’ll do the right thing and say ‘As a matter of fact, we have received a cheque and we’re working things out’.”

And Ludwig warns that carriers that don’t pass along the rebates could face ramifications.

“If they pocket the money themselves without the consent and permission of their owner/operators, in my opinion that would be an illegal act,” Ludwig says. “It was raised in the UPS case. (The judge) said that if someone commits a criminal act (by failing to pass on the rebate to the independent contractor), they will be dealt with by the criminal authorities.”

When asked to furnish a list of all the carriers that are receiving rebates, Ludwig said “I don’t think I’m allowed to. I have confidentiality rules I have to respect from the Law Society.”

For Nolan Transport, there’s been no attempt to circumvent the ruling by pocketing the refund. In fact, Nolan says that while tracking down past owner/operators has been difficult (made even more difficult by the accidental deletion of all driver files in 1996), it’s been worth the effort.

“I found one fellow – he was shocked,” Nolan says. “I called him out of the b
lue and I told him there was a bit of money for him. His wife was dying of cancer and things were rough. When I told him how much money it was, he was silent. He needs the money right now. He’s retired and things are tough and it makes a difference to have this windfall right out of the blue.”

Dave Monroe was easier to find. He’s a recently retired owner/operator who had been with Nolan for about 18 years and was called before a panel of CRA lawyers for questioning about two years ago. Monroe, along with three other owner/operators and general manager Peacock, were grilled by CRA officials who seemingly attempted to trip them up to avoid payment.

“It was intimidating,” Monroe says. “They tried to screw us up a little bit. They were asking us questions about what happened in 1995. How much fuel did you put in? Where did you buy it? We lost pretty much a day out of it, but it was worth it.”

Monroe received a cheque for $9,600 right before Christmas.

But not every owner/operator made out quite so well. In fact, Nolan says in some instances it was discovered the owner/operators actually owed the company money.

“There are cases where people owe us money as a consequence of this. They were overpaid, but it’s usually small amounts and we’re not going after those,” Nolan says.

Payouts range from $500 to $16,000 at Nolan, depending on fuel buying patterns during the affected years. Generally, owner/operators that bought fuel in Canada and did most of their driving in the US made out the best.

Unfortunately for O/Os who worked for a company between 1991 and 2002 that did not participate in the litigation, it’s now too late to make a claim. The feds moved quickly to close the loophole that allowed the multi-million dollar payouts.

“When the Government of Canada realized it lost the case after the Supreme Court handed down the decision (for company-owned trucks in 2003), they immediately passed legislation that said from here on in, nobody could make a claim for excise tax on diesel fuel that is being transported across the border,” Ludwig says. “If you haven’t made a claim by Feb. 14, 2003, you are barred from filing a claim.”

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