1. STATE TAX & FISCAL UPDATE Bob Pitcher VP, State Laws, ATA NAFC Annual Meeting June 17, 2014

2. Today’s Agenda State & Local Government Fiscal Situation State Tax Changes – Business Taxes – Highway Taxes IRP, IFTA & UCR Have We Made Any Progress?

3. State & Local Fiscal Update Some Trouble Spots Detroit Chicago Rhode Island Puerto Rico Are These Places Bellwethers?

5. Detroit Largest City Bankruptcy in U.S. History Filed Under Ch. 9 in July 2013 Corruption, Mismanagement, Population Loss, Unpaid Taxes $18.5 Billion in Debt Pensions the Big Issue Bankruptcy Trial Starts July 2014

7. Chicago Pensions (5 funds) Dragging City Down 36% Funded – c. $35 Billion Deficit (under GASB rules!) State Legislature Controls the Game Raise Taxes? Cut Benefits?

8. Rhode Island Pensions Again the Problem 58% Funded - $4 Billion Deficit (GASB) Local Pensions All PArt of State Fund 2011 Reforms Litigation  Arbitration  Vote  Limbo Union Opposition Central Falls Bankruptcy

9. Puerto Rico Small Population & Economy Subject to Federal Minimum Wage Government Sector 20% of Employment Debt $70 Billion – 89% of Personal Income Junk-Bond Credit Rating – Pension 7% Funded Not Eligible for Bankruptcy Analogies to Greece – Bailout Coming?

11. Are These Places Bellwethers? Warnings, Certainly Extreme Cases, But Suggestive Danger Signs for Others: Unaffordable Pensions & Benefits Bad Politics Damaged Economies Some Places Will Follow the Same Path

12. States Generally Most Current Budgets in Decent Shape Some Spending Increases, But Growth Slow Some Recovery in Housing Prices Oil & Gas Boom Northeast, IL, CA Worst Off, Great Plains Doing Fine States Not Well Prepared for Next Recession

14. Local Governments A Real Mix Few Really Stressed (CA, PA) Depends Mostly on Local Economies Mismanagement, Population Loss the Greater Dangers, Pensions Generally Less Troublesome Some Growth in Local Govt. Employment

16. Government Employment Last 18 Months: – Federal Employment Down 3-4% (Retirements) – State Govt. Employment Steady – Local Govt. Employment Up a Bit (Teachers) Early Signs of a Flood of Retirements Turnover Among Younger Workers Also Up Overall Loss of Govt. Expertise Imminent?

17. Private-Sector Employment %age of “Real” P-S Jobs Gained, 2007-12: – ND, 25%TX, 6%SD, NY, LA, VT, <2% – All Other States Lost P-S Jobs 2007-12 Statewide %age of “Real” P-S Jobs: – NM, 68%VA, 70%AK, 71% – MS, 72%WY, 73%AL, 74% North Central States Have Largest “Real” P-S

19. Long-Term Challenges Pensions & Retiree Benefits – A Mix, But Many Places in Trouble – Reforms Coming Too Slowly – No Easy Choices – Effect on Government? Federal Mandates – Health Care: Medicaid Consumes 23% of All State Spending – Set to Rise – Highway Program Devolution?

20. Federalism Increased Federal Aid to States Now More Mandates, More Strings Politics of Changes in Federal Spending Potential Entitlement Fixes, Tax Reform Some State Reforms – Enough to Help? Similar State  Local Dynamics Come the Next Recession….

22. State Tax Changes A Lot Last Year – A Lot Fewer This Year Elections Coming Up Few Themes Evident in 2014 Legislation States Concerned with Highway Funding

23. Trucks & Roads AL property taxMS sales tax CO sales taxMO sales tax? GA property tax (‘13)NV fuel tax (’13) KS property tax (‘12)NH fuel tax MA fuel tax (‘13) PA fuel tax (‘13) MI fuel tax?SC property tax? MN sales tax

24. General Taxes IL increases??? INcorporate income & property taxes MOpersonal income & maybe sales tax NVmargin tax OKpersonal income tax TXmargin tax?

25. Update on IRP IFTA UCR

26. IRP Full Reciprocity Plan IRP Membership for Mexico? Changes in PRISM

28. FRP Effective for IRP Registrations Beginning in 2015 ALL IRP Registrants Will Be Registered in ALL IRP States and Provinces No More Estimated Distance or Fees Fees Based, as Now, on Actual Fleet Distance Traveled New Carriers Pay a One-Time Standard Fee

29. FRP, cont’d. Change the Biggest to IRP in 20 Years In Discussion for 30+ Years All Favorable for Industry (& States) – Greater Flexibility – Saves Fees for Permits, Added States, etc. – Simpler for States to Manage

31. Mexican Membership New Administration in Mexico Mexican Carriers Beginning to See Advantages Movement Toward Membership? Still Some Years Off

32. Changes in PRISM With URS, FMCSA Drops State Check for MCS- 150 Update PRISM States to Deny Registration for Code 52 States Can No Longer Assist Carriers with MCS Updates

33. IFTA Audit & Record-Keeping Rules Taxation of Natural Gas State Compliance with IFTA Rules Electronic Credentials?

34. IFTA Audit Rewrite State & Industry Project (Similar to IRP’s) Drafting Now Finished – 2014 Ballot If It’s Accepted, Effective 2016 Flexibility for Distance Records Few Changes for Fuel Records Should Help Eliminate Bad Audits Some Opposition – Industry Support Needed

36. Natural Gas IFTA Adopted GGE Standard for CNG States Beginning to See n/g IFTA Reports NCWM Discussions on Metering Standards An IFTA DGE Standard for LNG? Reporting Dual-Fuel Vehicles Adjustments & Confusion Continue

37. Will IFTA Make Its Members Follow the Rules? NJ Debacle IFTA Dispute Process Flawed IFTA States Seem Ambivalent IRP Process Far Better Industry Message to IFTA Board

39. Electronic Credentials for IRP & IFTA ? Committee Discussions Beginning A Chance to Eliminate IFTA Decals? What Does It All Mean? Effect of Federal ELD Rule?

41. UCR States May Collect All Their Money This Year! Administration Proposes Amendments to Act – Remove Federal Representation on UCR Board – Incorporation of UCR as Private Entity – New Board Members Chosen by Co-optation – Leave Board (States) to Set Fees States May Like These Changes

42. A LONG LOOK BACK & A SHORT LOOK FORWARD

43. Where Did We Stand 30 Years Ago? Economic Deregulation Was Recent Interstate Trucking Was Expanding FAST State Operating Taxes Were a Crisis for the Industry Industry Expertise Assembled ATA Taxation & Reciprocity Committee NAFC Tax Committee Western Highway Institute Tax Committee

44. Fuel Use Taxes: The Poster Child Non-Uniform Burdensome Expensive!

46. Non-Uniformity in: Vehicles Registration Credentials Bonding Leases Tax Reports Credits & Refunds Audit & Administration

47. What Vehicles Had to Be Reported ? All Commercial Vehicles > 2 Axles > 7,000 lbs. Empty Wt. > 10,000 lbs. Empty Wt. > 18,000 lbs. GVW or 7,500 lbs. Empty Wt > 16,000 lbs. GVW > 30 Gallon Fuel Tank Capacity & at least 16 Other Definitions!

48. What Tax Registration Was Required? Annual, Biennial, or Permanent? Any Registration Fees? One-Time or Annual? Fees per Fleet or per Vehicle? Licenses for Each Place of Business? When to Be Renewed: October, December, January, March, April, or July? Vehicle-Specific Cab Cards? Account Numbers on the Vehicle?

49. Credentials (DECALS!) 1 per Vehicle – or 2? On Left Side, Right Side – or Front? Display Dates? Annual, Biennial – or Permanent? Were There Decal Fees? YOU BETCHA! Charged by 22 states

50. Bonding Required by 19 States Various Amounts and Limits Required for Refunds in c. 10 More States Alternative Security Rarely Allowed

51. Leases Who Must Report? –Lessee? –Lessor? –Party Buying Fuel? –Vehicle Operator? –Up to the Parties? –State Permission Needed? –Depend on the Lease? Copy of Lease Required in the Vehicle?

52. Tax Reports Frequency: Monthly, Quarterly, Annually? Due Date: 20 th, 25 th, 30 th, Last of Month? Postmark Honored? No Uniformity in Format Computation of Tax Varied: Vehicles Covered? Formula? State MPGs? Individual Vehicle MPGs? Supporting Documentation Required? Payment in Certified Funds?

53. Credits & Refunds Do Credits Carry Over? How Long? Are Refunds Available? Is There a Minimum Amount? Have to Be Audited First? Documentation? Other Restrictions?

54. Audit & Admin. Record Requirements –Official Fuel Receipts –Original Documents Frequent Changes in Requirements Rules Inaccessible to Taxpayers Multiple Audits Under Different Rules LOTS of Gotchas

55. Recap: Fuel Use Taxes in 1984 Non-uniform? Definitely Burdensome? For Carriers of All Sizes Expensive? US DOT estimated up to $1 billion a year in administrative costs for motor carriers IFTA Began in 1983 with 3 States

56. Flat Fees Charged Mostly for Fuel Use Tax Registration: – AL, CT, DE, FL, GA, IL, IN, KY, ME, MD, MA, MS, NH, NJ, NY, NC, PA, RI, SC, VT, VA, WV – Most Came with Decals – Often Vehicle-Specific – ME, NH, VT in RFTA – A Composite Sticker! Total Over $320 per Truck per Year ATA Had Begun the Scheiner litigation

58. Vehicle Registration IRP Then 10 Years Old – 27 Member States, 1 Province – Reciprocity Miles a Big Issue – Trailer Apportionment, Other Exceptions Uniform (Western) Pro-Rate Multistate Agreement Bilaterals Galore Fees for Reciprocity

61. Bingo Stamps Left-Over Regulatory Enforcement Fees “Money for Nothing” 39 States Participating Fees for Regulated Interstate Carriers Only Enormously Burdensome – Vehicle-Specific – Licking & Sticking – Complex Reciprocity Arrangements

63. Weight-Distance Taxes FHWA: “The Railroad Tax” In 1980s Imposed by 11 States: AZ, AR, CO, ID, KY, NV, NM, NY, OH, OR, WY Non-Uniform, Burdensome, Expensive, Rife with Evasion & Exemptions for Locals Active AAR Program to Spread W/D

64. Sales Taxes 22 States Levied Sales Tax on Interstate For- Hire Rolling Stock TX Levied Apportioned Use Tax MI Intermittently Sought Use Tax as Well Some Provinces Apportioned Sales Tax More States Imposed Sales & Use Tax on Parts & Labor for Rolling Stock

65. Property Tax 19 States Imposed Property Tax on Interstate For-Hire Rolling Stock: – 6 Allowed Apportionment Out – 4 Required Apportionment for All with Nexus 7 States Collected an In-Lieu Fee with Registration

66. Regulatory Fees Fees for Intrastate Use of Interstate Equipment ($100 per Vehicle in MI) Gross Receipts Taxes (NY, PA, UT) Intrastate Authority Still Difficult to Obtain in Some States

68. How Far Have We Come? Fuel Use Taxes? IFTA Vehicle Registration? IRP Bingo Stamps? SSRS  UCR Flat Fees? Unconstitutional Regulatory Fees?Gone Sales & Property Taxes? Number of Exemptions Doubled

70. More Yet To Do Repeal UCR(It’s Still Money for Nothing) There Are Still 4 W/d Taxes (and Talk of VMT) Sales Tax Exemptions Aren’t Universal Property Tax Issues Still Exist Motor Carrier Nexus Issues Need Federal Fix Eliminate or Reform Credential Requirements Eliminate the Paper!