May a transportation corporation include its independent operators' revenue miles in the section 184 mileage allocation fraction?

Plain-English summary

Hurry Wagon, Inc. runs an overnight package-delivery business across upstate New York using a hub-and-spoke network; once a package reaches a regional node, independent operators deliver it to the customer (some traveling out of state to bring freight to a New York destination). Hurry Wagon asked whether it may include its independent operators' revenue miles in computing the section 184 mileage allocation.

No. Section 184.4(a) allocates a transportation corporation's gross earnings by multiplying total gross earnings by a fraction: the taxpayer's New York mileage over the taxpayer's mileage within and without the State. For trucking corporations, "mileage" means actual revenue miles (deadheading and other nonrevenue miles are excluded). The statute repeatedly says "the taxpayer's mileage," so Hurry Wagon may include in both the numerator and denominator only its own revenue miles -- not the revenue miles of the independent operators it hires to perform part of the deliveries.

Hurry Wagon relied on Hygrade Furniture Transport (a carrier need not split its fee with independent truckers it engages), but Hygrade addressed allocating fees, not counting miles, and does not let a taxpayer count others' miles. If the prescribed method does not fairly reflect New York gross earnings, the Commissioner may prescribe an alternative under section 184.4(e) -- but whether to grant that discretionary adjustment is a factual question outside an advisory opinion.

What this means for you

The section 184 mileage fraction uses the taxpayer's own revenue miles

Allocation is the taxpayer's New York revenue miles over the taxpayer's total revenue miles. Nonrevenue (deadhead) miles are excluded from both the numerator and denominator.

Independent operators' miles do not count

A transportation corporation cannot add the revenue miles of the independent operators it contracts with; only its own revenue miles go into the fraction.

A discretionary alternative exists but is fact-specific

If the standard mileage method does not fairly reflect New York gross earnings, the Commissioner may prescribe a different method under section 184.4(e); an advisory opinion cannot decide whether that adjustment is warranted.

Common questions

Q: Can a trucking corporation count its independent operators' revenue miles for section 184?
A: No. Only the taxpayer's own revenue miles go into the section 184.4(a) allocation fraction.

Q: Are deadhead miles included?
A: No. The fraction uses actual revenue miles; nonrevenue miles like deadheading are excluded.

Q: Does Hygrade help?
A: No. Hygrade was about whether a carrier could split its fees with independent truckers, not about counting their miles.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 184 (transportation franchise tax); section 184.4(a) (mileage allocation fraction; "the taxpayer's mileage"); section 184.4(e) (discretionary alternative allocation)
- TSB-M-82(9)C (trucking corporations use actual revenue miles); Hygrade Furniture Transport, TSB-H-86(16)C (allocation of fees, not miles)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a96_9c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (9) C
Corporation Tax
March 25, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C951030A

On October 30, 1995, a Petition for Advisory Opinion was received from Hurry Wagon, Inc.,
10 Cairn Street, Rochester, New York 14611.
The issue raised by Petitioner, Hurry Wagon, Inc., is whether it may include its independent
operators' revenue mileage in determining revenue miles for purposes of the mileage allocation for
transportation corporations under section 184 of the Tax Law.
Petitioner's principal business activity is overnight package delivery in an area which includes
all of upstate New York and excludes Manhattan and Long Island. In pursuing its business activities,
Petitioner has adopted a scheme involving nodes and spokes, similar to that adopted by national
package carriers. Petitioner has divided upstate New York into regions, each serviced by a central
node. Currently, the nodes are located in Albany, Syracuse, Buffalo and Forrestville, New York.
Each node services all of its customers in its region.
Petitioner maintains a primary warehouse for the receipt and distribution of packages in
Rochester, and small drop-off points in each of its regional nodes. Once a package reaches a
regional node, shipment from the node to the ultimate user is accomplished through the use of
independent operators. A few of Petitioner's independent operators travel out-of-state to pick-up and
forward freight to a New York destination.
Section 184 of the Tax Law imposes an annual franchise tax on a domestic or foreign
corporation formed for or principally engaged in the conduct of a transportation business for the
privilege of exercising its corporate franchise, doing business, employing capital, owning or leasing
property in a corporate or organized capacity or maintaining an office in New York State.
Section 184.4(a) of the Tax Law provides that:
[a] transportation ... corporation shall determine its gross earnings from
transportation ... services within this state ... by multiplying its gross earnings from
transportation ... within and without the state by a fraction, the numerator of which
is the taxpayer's mileage within this state and the denominator of which is the
taxpayer's mileage within and without this state during the period covered by the
report or reports required by this chapter.
With respect to trucking corporations, "mileage" in the context of section 184.4(a) of the Tax
Law means actual revenue miles for purposes of both the numerator and denominator of the
allocation fraction. Nonrevenue miles, such as deadheading, are not included in either the numerator
TP-9 (9/88)

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TSB-A-96 (9) C
Corporation Tax
March 25, 1996

or denominator of the allocation fraction. The allocation formula with respect to trucking
corporations takes into account actual revenue producing activity both within and without New York
State. (See, Technical Services Bureau Memorandum, March 12, 1982, TSB-M-82(9)C.)
In Hygrade Furniture Transport, Inc., Dec St Tax Comm, April 15, 1986, TSB-H-86(16)C,
the petitioner contracted with furniture and department stores to deliver furniture sold to the stores'
customers. The petitioner then entered into contracts with independent truckers to provide the
transportation services for the delivery. Petitioner did not own any trucks or employ its own drivers.
The stores paid the petitioner for the delivery service and the petitioner, in turn, paid a commission
to the truckers. The Tax Commission held that since the petitioner entered into the contracts with
the stores and agreed that it would provide the services and accepted responsibility for any damages
it caused, the petitioner held itself out to the public as a provider of transportation services. The
truckers were employed by the petitioner, not the stores, and therefore, the petitioner was providing
the transportation delivery services for the stores, and not merely acting as a conduit through which
the stores entered into contracts with the independent truckers. Therefore, it could not allocate its
fees received from the stores between itself and the independent truckers.
Following the decision in Hygrade, supra, Petitioner argues that when allocating revenue
miles for purposes of section 184.4(a) of the Tax Law, Petitioner should be allowed to include the
revenue miles of its independent operators that provide a portion of Petitioner's transportation
delivery services.
However, section 184.4(a) of the Tax Law, which provides for the allocation of gross
earnings from transportation services, specifically states that a taxpayer shall multiply "its gross
earnings from transportation ... within and without the state by a fraction, the numerator of which
is the taxpayer's mileage within this state and the denominator of which is the taxpayer's mileage
within and without this state .... " (Emphasis added.)
Accordingly, when Petitioner allocates its gross earnings from transportation services under
section 184.4(a) of the Tax Law, it may include, in the numerator and denominator of the fraction,
only its own revenue mileage within and without New York State. Petitioner may not include, as
revenue miles, the revenue mileage of any independent operator that Petitioner has contracted with
to assist Petitioner in its transportation delivery services.
It should be noted that section 184.4(e) of the Tax Law provides that when the Commissioner
of Taxation and Finance decides that the method prescribed above does not fairly and equitably
reflect gross earnings from all sources within New York State, the Commissioner shall prescribe a
method of allocation or apportionment which fairly and equitably reflects gross earnings from all
sources within New York State.

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TSB-A-96 (9) C
Corporation Tax
March 25, 1996

However, an Advisory 0pinion merely sets forth the applicability of pertinent statutory and
regulatory provisions to "a specified set of facts." Tax Law, §171.Twenty-fourth; 20 NYCRR
2376.1(a). It is not within the scope of an Advisory Opinion to determine questions of fact such as
whether a discretionary adjustment under section 184.4(e) of the Tax Law should be granted.

DATED: March 25, 1996

NOTE:

s/DORIS S. BAUMAN
Director
Technical Services Bureau

The opinions expressed in Advisory 0pinions
are limited to the facts set forth therein.