Ask yourself the following questions:
1. Are you a trucking company?
2. Do you lease equipment from owner-operators?
3. Do you ever sell or lease equipment (e.g. trucks, tractors, trailers, accessorial items) to the owner-operator that you then lease-back from the owner-operator?
4. Do the drivers provide service primarily in Oregon? Or are they based in Oregon? Or are they dispatched from you location in Oregon? Or do they live in Oregon?
If you answered yes to the above questions, then a valuable exemption from the Oregon Unemployment Tax is under attack by the Oregon Employment Department (“OED”).
The Owner-Operator Exemption: ORS 657.047.
ORS 657.047(1)(b) excludes from the definition of “employment” for unemployment tax purposes-
Transportation performed by motor vehicle for a for-hire carrier by any person that leases their equipment to a for-hire carrier and that personally operates, furnishes and maintains the equipment and provides service thereto.
This exclusion, often referred to as the “owner – operator exemption,” seems simple and clear: A trucking company does not have to pay Oregon unemployment tax in regard to these owner-operators.
The OED disagrees. After recognizing the owner-operator exemption for years following adoption of the statutory exemption in 1987, which it opposed, the OED essentially began to act as if the exemption did not exist. OED has made several arguments as to why the exemption does not apply. The bottom line, however, is that OED does not like the exemption and does not want to apply it.
OED’s opposition to the exemption has resulted in several carriers being found liable for unemployment tax and benefits for owner-operators that fell within the exemption. The issue has come up both in individual benefit claim cases and in tax audit cases where the OED reclassified these owner-operators as employees. The carriers involved are fighting the OED’s new interpretation, and there are several cases now pending in the Oregon Court of Appeals taking OED to task. Two of the cases are scheduled for oral argument in November.
Defining “Their Equipment”: OAR 471-031-0200.
In an apparent effort to bolster their new interpretation, the OED adopted the following new rule in late 2010, effective January 1, 2011:
Ownership of Equipment
For purposes of ORS 657.047(1)(b), “their equipment” consists of vehicles or equipment that meet all the following criteria:
(1) The vehicle or equipment is independently furnished by the service-provider, neither leased nor purchased from the for-hire carrier or from any entity affiliated with the for-hire carrier;
(2) Any lease of vehicle or equipment by service-provider as lessee, or title in the vehicle or equipment held by the service provider is not conditioned upon any other agreement or contract, including, but not limited to, the following examples:
(a) an operator agreement between the service-provider and the for-hire carrier;
(b) a lease of the vehicle from the service-provider to the for-hire carrier;
(c) any contract obligating the service-provider use the vehicle to provide services to the for-hire carrier.
If allowed to stand, this new rule means that motor carriers that follow the business model of using owner-operators under sale-leaseback or lease-leaseback arrangements can no longer do so without covering them under Oregon’s unemployment tax. Please note that “equipment” is not limited to power units, but would include trailers and anything else that a trucking company leases or sells and then leases back from an owner-operator. If that is the case, then you must provide unemployment insurance coverage for that owner-operator.
If you see this change as adversely impacting how you do business and increasing your costs of operation, then you need to consider stepping up to challenge the rule. The Oregon Trucking Association is exploring the options available to carriers interested in forming a group to challenge the rule. If you have questions or simply wish to discuss the situation and challenge to the rule, please call Debra Dunn, President of OTA, at 503-513-0005, or Kevin or John at 503-227-4586.