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Michigan exempts Canadian firms from state tax

TORONTO, Ont. -- Michigan Governor Jennifer Granholm has signed into law a bill exempting Canadian cross-borde...

TORONTO, Ont. — Michigan Governor Jennifer Granholm has signed into law a bill exempting Canadian cross-border trucking companies and auto parts manufacturers that do not have a permanent establishment in the state, from having to pay the Michigan Business Tax (MBT).


The bill was approved by both the Michigan Senate and the House of Representatives in a pre-Christmas marathon, make or break session.


According to the Ontario Trucking Association (OTA), which led the fight on behalf of Ontario truckers, the MBT (which is a gross receipts tax) could have cost Ontario trucking companies who operate into, out of or through the state, around US$1,000 per truck per year, had the bill not passed. The OTA estimates that Ontario trucking companies would have been on the hook for at least US$40 million per year. About three-quarters of Ontario-US trade (by value) moves by truck.


The essence of the argument put forward by the OTA was that the MBT is inconsistent with international tax norms, defies the spirit of the Canada-US tax treaty, and runs counter to the way Canadian provinces tax Michigan business.


“We wanted to preserve reciprocal treatment for carriers operating between Canada and the US,” said OTA president, David Bradley.  


Ontario and Canada do not tax Michigan businesses that operate across the border, according to the OTA. Only companies that have a permanent establishment in a province are subject to corporate income taxation, and no Canadian jurisdiction has a gross receipts tax.


“We just wanted to be treated fairly,” added Bradley. “It makes little economic sense in these difficult times for the economies of both Michigan and Ontario – which are so dependent upon the automotive manufacturing industry – for the two jurisdictions to be working against, and not with each other.”


The OTA began its lobby campaign to amend the MBT legislation (which came into force on Jan. 1, 2008) in the fall of 2007. After passing relatively smoothly through the Senate in January 2008, the bill to exempt Canadian truckers ran into opposition the following month, when it went before the House of Representatives Tax Policy Committee.


The opposition came principally from one Michigan taxpayer: the company that owns the Ambassador Bridge and Central Transport. But, after months of wrangling, the bill finally made it back to the House tax committee on December 10th, where it was passed. On Dec. 19th, the bill was passed by both chambers of the Michigan legislature in an all-night session before the holiday break.


“This was no slam dunk,” says Bradley. “But in the end, the legislators were obviously convinced by the merits of our arguments and the inherent fairness that reciprocity brings.”


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