Date: July 18, 2011
To: TIA Members
From: Bob Voltmann, TIA President & CEO
We have heard from many members about states assessing taxes on transactions within those states based on 1099s issued to carriers within those states. Upon review, our attorneys have determined the following
There is a general exception from the requirement to file I.R.S. 1099 forms for payments made for freight services, and it remains unchanged by recent legislation. See 26 CFR 1.6041-3(c). This exception applies regardless of whether or not the carrier is incorporated. The I.R.S. clarified this point in a June 17, 1999 memorandum. See I.R.S. Letter Ruling 199932048, available at http://www.irs.gov/pub/irs-wd/9932048.pdf. This exception is further reflected in the current I.R.S. Trucking Industry Overview, which contains a note on “Forms 1099” in the section on “Significant Law and Important Issues” stating that “[p]ayments to truck owner-operators may be excepted as ‘freight’.” The I.R.S. Trucking Industry Overview is available online at http://www.irs.gov/businesses/article/0,,id=176043,00.html#10.
This means that you do not need to issue 1099s to motor carriers, thereby, reducing the risk of triggering a tax nexus in a state other than those in which you have offices. In addition, it will eliminate this costly process from your operations.
No other association has taken the time to figure this out. It is just another way TIA is serving you, and providing a return on your membership investment!
Please let me know if you have any questions.