UPS claims NY fees and penalties are unconstitutional

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United Parcel Service Inc. has filed a federal lawsuit challenging the constitutionality of New York’s requirement that motor carriers must pay $1.50 to purchase a decal for each vehicle that operates in the state.

The complaint also challenges the penalty imposed on carriers for failing to purchase decals, and a nearly $2 million penalty assessed on UPS for not purchasing decals for some of its vehicles.

UPS delivers packages in New York and transports packages through New York to other states. Because of New York’s geographical position, UPS vehicles must drive through the state to deliver packages in northeastern states, or leave the country and drive through Canada, according to the complaint.

New York requires UPS to pay a highway use tax (HUT) based on the gross weight of each vehicle, and the number of miles each vehicle drives on New York highways.

In addition, UPS is required to apply for a certificate of registration from the state Department of Taxation and Finance (DTF) for each vehicle that operates on New York roads. To prove that each vehicle has a valid certificate, UPS is required to pay a fee for a decal for each vehicle.

Failure to obtain a decal can result in a penalty ranging from $500 up to $3,500 per violation.

DTF audited UPS for the April 1, 2016, through June 30, 2019, and determined that UPS should have purchased 1,829 additional decals during. The state assessed UPS $1,829,000 in penalties ($1,000 per unpurchased decal).

In 2016, a state Supreme Court judge in Albany County ruled that the fee charged for the decal was unconstitutional because the fee imposed an undue burden on interstate commerce, according to the complaint.

At that time, the state charged $4 for the decal and the penalty for failing to obtain and to pay for a decal ranged from $500 up to $3,500 per violation.

Despite the Supreme Court ruling, the state Legislature continued to require the decals but reduced the fee from $4 to $1.50. The Legislature left the amount of the penalty unchanged.

The decal fee and the penalty violate the Federal Aviation Administration Authorization Act (FAAAA) of 1994, “which preempts state laws having an explicit or implicit connection or reference to a motor carrier’s prices, routes, or services,” according to the complaint.

The decal fee and penalty violate the FAAAA because New York forbids carriers from entering the state without first obtaining a decal and paying the decal fee, or risk being subjected to a civil fine.

“The pre-entrance requirement creates a substantial and direct burden on carriers like UPS in the form of increased labor and operational costs, and delays, which all negatively impact delivery routes, services offered, and prices,” according to the complaint.

The decal fee and penalty also violate the Commerce Clause of the United States Constitution, the suit claims.

“The regimes on their face, and as applied to UPS, impose an undue burden on interstate commerce because the decal fee and penalty are not apportioned based on miles traveled in New York, and have a discriminatory, disproportionate impact on non-New York carriers,” the suit claims.

The penalty also violates the Excessive Fines Clause of the United States and New York Constitutions, the suit claims.

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