Many Canadian motor carriers have been tempted to establish US operations, but fear the cost and complexity of taking such a step. It is not as imposing as one may think.
Establishing US operations is not recommended as a means of trying to overcome the US cabotage laws which prohibit point-to-point movements in the US. That approach reflects the mindset of an international motor carrier that wants to legalize US point-to-point movements, in order to be more cost efficient on extended trips into the US. However, a Canadian motor carrier will not be able to achieve that goal through the use of Canadian drivers and Canadian-based equipment. In contrast, the successful venture into the US is more often associated with a US domestic business plan, using US drivers and US-based equipment, that complements or supplements the Canadian and international operations.
Establishing US operations has several essential components. First, the carrier must determine whether it will operate in the United States through a separate, independent entity, or as a branch office of the Canadian company. Most companies want to limit the exposure of Canadian-based assets to liability created in the United States, so they form a separate company in the US. (The principals of the company should consult with a tax advisor to determine the appropriate type of entity and ownership structure). Canadian residents can be the 100% owners of a US company; there is no requirement for any US representation in the ownership or management of a US company. Each of the 50 states has the authority to grant corporate and business charters, and the company will have to comply with the state laws applicable to business operating within that state.
A second key component is regulatory compliance. After the US company is formed, it must register as a motor carrier with the Federal Motor Carrier Safety Administration and US Department of Transportation. Depending on the in-state activities and the regulatory scheme of the particular state, further registration at the state level may also be required. The registration for operating authority also requires the carrier to maintain minimum levels of liability insurance.
The next piece to the puzzle is equipment and a physical premises. The alternatives for purchasing or leasing equipment is generally the same in the US as it is in Canada. The Customs laws prevent the carrier from dedicating Canadian-based equipment to domestic US use, and any Canadian equipment would have to undergo appropriate Customs entry and/or importation process. The nature of the physical premises occupied by newly established motor carriers runs the gamut from a terminal sharing arrangement, to leasing of property, to outright ownership of suitable property. Again, as a general rule, there are no outright prohibitions against Canadian ownership of US property, either directly or through a corporation. It is important to seek tax advice for ownership of equipment and real estate because of the significant tax deductions associated with depreciable assets.
Finally, there is the issue of personnel. It is clear that the immigration laws will not allow a Canadian-based carrier to utilize Canadian drivers for domestic US purposes. The new US company would have to hire US drivers (either employees or owner/operators, or both) for that purpose. The same is not the case for US management, and immigration laws allow Canadian-based managers and essential workers to qualify for work visas. The L-1 visa allows transfers of key employees from the Canadian company to its affiliated US company, provided the individual has worked within the organization in Canada for at least one year prior to the transfer. The transferee does not have to be an owner or part owner of the company. In cases where the Canadian owners have made a significant into the US operations, the E-2 visa allows the US company to hire Canadian key personnel even without any prior experience with the Canadian company.
Under NAFTA, US companies can also hire certain professionals in occupations such as accountant, computer systems analyst and management consultant. In some cases, care must be taken to make sure that the company is not “top heavy” with Canadian-based personnel, but the fact remains that many options are available to hire Canadian workers at the managerial and specialty occupation levels.
Doing business in the United States requires the assembly of a competent team of advisors, including attorneys, accountants, insurance brokers, Customs brokers, real estate brokers and employment agencies, to name a few. But the strides gained through industry deregulation in the 1980s and subsequent Free Trade Agreements in the 1990s, have paved the way for ideal conditions for the Canadian motor carrier that wants to expand its horizons by establishing independent operations in the United States.
– Daniel Joyce is a partner with the Buffalo N.Y. law firm Jaeckle Fleischmann & Mugel LLP. He can be reached at (716) 843-3946.
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