Law and the Border: A few points about point-to-point movements in the U.S.
April 1, 2003
Point-to-point movements in the United States are an issue for every Canadian carrier involved in international transportation. Whether referred to as "interstating," "cabotage," "domestic movements,"...
Point-to-point movements in the United States are an issue for every Canadian carrier involved in international transportation. Whether referred to as “interstating,” “cabotage,” “domestic movements,” or “local traffic,” the issue is the same: To what extent can a Canadian carrier use its equipment and personnel to make movements between points in the U.S.? We have addressed the answer to that question previously, and will not go into detail here. Suffice it to say that, as a general rule, the Immigration rules prevent any such movements by Canadian drivers, while the Customs rules allow some limited exceptions for use of Canadian equipment.
To better understand the issue, it may be helpful to frame the question in a different way. Given that the issue relates to a Canadian carrier engaged in international commerce, the question could be, “What minimal point-to-point U.S. movements will still be considered part of international transportation?” I use the word “minimal” because point-to-point domestic movements are by definition not international in nature, and can rightfully be considered to be conducting a U.S. business. So, the question brings itself into sharper focus when you look at both points of view – what is it about the character of the U.S. domestic movements that allows them to be considered part of international transportation, and what is it that allows such movements to be excluded from the usual laws applicable to strictly U.S. businesses? When you look at the issue that way, it should not be surprising to see that the boundaries for legal cabotage are quite narrow.
Many carriers, recognizing the narrow boundaries, ask how they can legitimately begin doing point-to-point activities in the U.S. Based on the principles summarized above, that question is really asking how the Canadian carrier can establish U.S. operations. If the Canadian carrier wants to conduct U.S. operations using the same corporate entity used in Canada, the U.S. operations will be viewed as a branch office. Alternatively, the Canadian company could establish a separate legal entity to conduct business in the U.S. Here is a list of some important issues the company must consider when making a decision to establish U.S. operations:
State registration: In order to conduct business in the U.S., you must apply for and receive authorization in the state in which the U.S. business will be based. Depending on the scope of operations and the location of employees, terminals, etc., the company may have to register in more than one state.
State and federal taxation: A Canadian carrier doing business in the U.S. will receive a friendly welcome from the U.S. and state taxation authorities. By doing business in the U.S., you subject yourself to U.S. income taxation and state income taxation in all states in which you do business.
Customs entry of vehicles: Although the Customs laws allow some latitude in use of Canadian equipment that is incidental to international transportation, those exceptions do not apply to purely domestic operations. If you want to use Canadian equipment for your U.S. operations, you will have to import the equipment through a formal Customs entry, and register the equipment in the base state.
Immigration law approval for workers: Canadian personnel cannot work in the U.S. without Immigration approval (as of Mar. 1, 2003, the INS is now known as the Bureau of Citizenship and Immigration Services – BCIS). BCIS regulations allow transfers of key managers and other essential workers, but not drivers. The U.S. branch will have to find U.S. drivers.
U.S. Employer/Employee laws: The U.S. entity will be subject to all state and federal laws regarding workers, including workers’ compensation, unemployment insurance, disability, anti-discrimination laws, and other workplace regulations.
U.S. Insurance: Your Canadian insurance policy may not provide coverage for your U.S. domestic activities. You will have to contact your insurance agent to determine the necessary insurance coverage for U.S. operations.
Operating authorities: If you are operating as a branch office, your federal operating authority will remain valid. However, introducing point-to-point activities within certain states will require intrastate authority. (Not all states require this.) If you are establishing a new corporation for U.S. operations, you will need new federal operating authority.
Obviously, there is quite a difference between the very limited, if any, point-to-point movements that are considered incidental to international transportation, and the establishment of U.S. domestic operations.
If you have the desire to actually conduct lawful point-to-point business in the U.S., you need to consider the above points, among others, to determine if your objectives can be achieved while remaining profitable at the same time.
– Daniel Joyce can be reached at Hirsch and Joyce, Attorneys at Law, at 716-564-2727.