SCORE

The trucking and transportation industry is ripe with opportunity for entrepreneurs who want to enter a field that contributes immensely to the U.S. economy. According to data released by the American Trucking Association in 2019, industry revenues grew to $796.7 billion in 2018, which was nearly $100 billion more than in 2017.

Along with the opportunity comes responsibility.

Starting a trucking company comes with some unique startup considerations and various business compliance obligations.

There's much to think about, so let's home in on some of the details.

1. Get professional legal, accounting and tax guidance.

It’s advisable to enlist the expertise of licensed practitioners in law, accounting and taxes, who can offer specialized guidance for your situation. Doing research online can help you identify what you must consider, but it is not a replacement for one-on-one counsel from licensed professionals.

2. Carefully choose the business structure for your trucking company.

The business entity you choose will affect the personal liability, tax obligations and other aspects of your trucking business:

Legal Matters

With sole proprietorships and partnerships, there’s no legal or financial separation between the business owners and the company—they are the same legal and tax entity. That makes owners personally liable if someone sues the business. On the other hand, Limited Liability Companies (LLCs) and corporations are independent legal and tax entities, thereby reducing the risk that owners' assets will be taken in the event of a lawsuit filed against the business.

Tax Treatment

Income Taxes
The profits of sole proprietorships, partnerships, LLCs and C Corporations that file for S Corp tax treatment pass through to the owners (or shareholders) of the company. Those profits get reported on the owners’ individual income tax returns and taxed at the applicable individual tax rates. Corporations (known as C Corps) that do not opt to be taxed as an S Corp are taxed at the corporate income tax rate. They experience “double taxation,” which means a corporation's profits are first taxed at the corporate rate and reported on the corporation’s tax return. Then, if the corporation distributes dividends to shareholders, those distributions get taxed again on each shareholder’s personal tax statement.

In most states, state income taxes are applied in the same manner as federal income taxes.

Any businesses with employees and all LLCs and corporations must obtain an EIN (Employer Identification Number), also known as a “Federal Tax ID Number” from the IRS for tax filing purposes.

Self-employment Taxes
Owners of sole proprietorships, partnerships, and LLCs must also pay self-employment taxes (Medicare and Social Security) on all business profits. Owners of S Corporations and Corporations only pay self-employment taxes on wages and salaries that the business pays them. Business profits paid to them as distributions (dividends) are not subject to self-employment taxes.

Growth Considerations

The need for financing can also affect which business entity type is best. Many investors and lenders will only provide funding to a business that’s registered as an LLC or corporation.

Compliance Complexity

The amount of registration paperwork and ongoing compliance requirements vary by entity type. There typically isn't any formation paperwork required when operating as a sole proprietorship or partnership, aside from filing a DBA (doing business as) if using a fictitious name rather than one that contains the first and last names of the business owners. LLCs must file Articles of Organization and corporations must file Articles of Incorporation to form their entities. Depending on the state and the entity type, there may be other filings and activities, as well. C Corporations have more formalities (such as appointing a board of directors and adopting bylaws) than other entity types. To keep legal costs in check when forming and running a business entity, consider using an online business filing service to prepare and submit the necessary filings.

3. Write a business plan.

Starting a trucking company has a lot of moving parts, such as purchase or lease of a truck and trailer, plate fees, fuel, inspections, maintenance, repairs, various licenses and registrations, insurance, staff, filing fees, and legal and accounting services. A business plan serves as a roadmap to help guide business owners through the startup process and beyond.

A business plan may change as the industry or business climate evolves. It’s a dynamic rather than a static document.

Some of the components generally included in a business plan are:

  • Executive Summary
  • Company Description
  • Market Analysis
  • Sales and Marketing
  • Financial Projections

Talk with a SCORE mentor about what your business plan should cover and where you might find a suitable template to use as a starting point.

4. Research and obtain the business licenses and permits your trucking business needs.

Besides the general business licensing requirements, trucking businesses face industry-specific tax, license and permit regulations, too. I’ve listed some common requirements below:

  • CDL (Commercial Driver’s License) - Any truck drivers working for a trucking company must have a CDL from the state driver licensing agency in their state of residency.
  • Federal DOT Number –  The Federal Motor Carrier Safety Administration issues USDOT numbers, and the U.S. Department of Transportation uses them to collect and monitor a trucking company's safety information, including inspections and accident investigations.
  • Operating Authority – For-hire freight carriers and those that transport (or arrange for the transport of) federally regulated commodities in interstate commerce must obtain operating authority (also known as “trucking authority”). That requires applying for an MC Number (Motor Carrier Authority Number) through the FMCSA. To obtain operating authority, trucking companies must provide proof of liability insurance.
  • Registration with the Unified Carrier Registration (UCR) system – Individuals and companies that operate commercial vehicles in interstate or international commerce must register in a state that participates in the UCR program. There is an annual fee (varies depending on the size of the fleet). If a trucking company’s home state doesn’t participate in UCR, the business must register with UCR in a state that does participate.
  • Heavy Vehicle Use Tax – Trucking companies must file an annual Heavy Highway Vehicle Use Tax Return and remit the applicable tax (for trucks that weigh more than 55,000 pounds) for their fleet. Costs can range from approximately $100 to $550 per year per vehicle.
  • Designate a Process Agent – Trucking companies must designate a process agent in each state where they have an office or establish contracts. Process agents are used in the event that court papers are served to the trucking company in a state other than the one its business is registered in. Some process agents offer coverage in all 50 states.
  • International Registration Plan (IRP) RegistrationThe IRP distributes commercial motor carrier registration fees to U.S. states, District of Columbia and Canadian provinces based on the miles traveled in each state or province.
  • International Fuel Tax Agreement (IFTA) Permit and DecalsIFTA is an agreement between the lower 48 states of the U.S. and Canada’s provinces to simplify motor carriers' reporting of their fuel use and taxes. Carriers that drive in multiple states and/or across Canadian provinces must make quarterly reports and tax payments to the International Fuel Tax Association, Inc., which distributes tax revenues to the individual states and provinces.

Note that your trucking company may have other requirements to fulfill, depending on the state where they're located and other factors.

5. Create a calendar for your ongoing business compliance responsibilities.

As you can see, there are many details to stay on top of when running a trucking business. To operate your company legally year after year, you'll have ongoing business compliance responsibilities to fulfill. Depending on the business entity type, there might be annual reports to file, annual meetings to hold, registered agent services to keep current, and more. It's critical to stay up to date with all filings, reports, fees, taxes, license and permit renewals, fee payments and all other requirements for operating a trucking business. Failure to do so can put your company at legal risk and jeopardize its good standing with the Secretary of State and other authorities. I recommend having a compliance calendar laid out for each upcoming year so that you don't lose sight of when filings and reports are due. Some online business document filing companies have free compliance monitoring tools you can use to get notifications when upcoming filings and reports are nearing their due dates.

Put Yourself on the Road to Success

Guidance from qualified professionals and trusted resources during the startup stages of the business can help you avoid roadblocks on your journey to entrepreneurship. I encourage you to not only enlist the expertise of an attorney, accountant and tax advisor so that you have all your legal and financial bases covered, but also reach out to other trucking company owners for their words of wisdom. And remember to talk with SCORE mentors so that you can benefit from their breadth of experience and knowledge about starting and running a business.

About the Author(s)

Nellie Akalp

Nellie Akalp is a serial entrepreneur, small business advocate, speaker and author. Nellie has been named a Top 100 Small Business Influencer by Small Business Trends the last five years and CorpNet.com has been recognized on the Inc. 5000 list of fastest-growing privately-held companies in America in 2015 and 2016. 

CEO, CorpNet
man in front of fleet of trucks