In recent years, many small and mid-size Canadian trucking companies received an unwelcome surprise from the U.S. Internal Revenue Service (IRS): a letter announcing an IRS audit to determine whether the company owes U.S. Heavy Highway Vehicle Use Tax. Even for companies that have been in business for years, that letter may have been the first time they have heard about this U.S. excise tax.

A company may be liable for U.S. Heavy Highway Vehicle Use Tax if one or more motor vehicles designed to carry a load over public highways are registered — or required to be registered — in the company’s name and are used on any public highway in the United States.

The tax varies from US$100 per year for a vehicle with a taxable gross weight of 55,000 pounds to a maximum of US$550 per year for a vehicle weighing over 75,000 pounds. Vehicles with a taxable gross weight of less than 55,000 pounds are exempt from the tax, and logging vehicles are taxed at reduced rates. For purposes of the tax, the taxable gross weight of a vehicle is generally the sum of the following three components: (1) the actual unloaded weight of the vehicle fully equipped for service, plus (2) the actual unloaded weight of any trailers customarily used with the vehicle, and plus (3) the weight of the maximum load customarily carried on the vehicle and any trailers.

The annual tax period for Heavy Highway Vehicle Use Tax is not the calendar year but instead begins on 1 July and ends on 30 June of the following year. A return (IRS Form 2290) must be filed no later than the end of the second month of the annual period. For example, for the annual period from 1 July 2026 to 30 June 2027, the return must be filed no later than 31 August 2026. For any vehicles first used on a U.S. public highway during the remainder of the annual tax period, monthly Forms 2290 must generally be filed and a prorated amount of tax paid. The IRS requires electronic filing for returns that include 25 or more vehicles. Many companies prepare and file the returns themselves using in-house personnel. Preparing the first return can be time consuming because of the data entry to set up all the company’s vehicles in the system.

The IRS obtains border crossing data from U.S. Customs and Border Protection to identify Canadian freight carriers who may be subject to the tax. Once the IRS informs a company that an audit examination has begun, it is important that the company responds promptly, provides the information requested, and reviews the information the IRS used to reach its conclusions. The audit process can move very quickly, which can be a challenge for small companies with lean staffing. Failing to provide information or to submit an appeal on time can result in a large tax bill from the IRS based on the wrong information, at which point it will cost more and take longer to resolve the issue.

An experienced attorney or outside accountant can provide valuable advice to help navigate an IRS audit process, but being aware of the tax and identifying any compliance obligations proactively is the best way to avoid that unwelcome surprise altogether.