Some states have higher registration fees than others. Some require additional inspections or certifications to operate that can add up to lots of money. Even to become a freight broker, you will find different states have different standards for licensing and titling for instance.
Another area that can affect your bottom line by location is local and state taxes. Even though you can operate your business from any location, your tax treatment will depend on where you establish your freight brokerage. On the plus side, you can rely on uniform national standards for most of your operation costs.
Some states have heftier tax burdens for businesses than others, however, many offer special tax incentives and credits for independent contractors and small business owners. Nearly everything you use to operate your freight business is deductible including your home office as well as:
Internet Fees
Continuing Education and Licensing
Marketing
Employees
Costs for Health Insurance
But these are not the only outside costs associated with operating a freight brokerage from state-to-state. One factor in particular can be hugely important when deciding where to establish your freight brokerage; the gas tax.
Factoring in the Gas Tax
A study recently conducted by the API determined which states had the most favorable tax treatment when factoring the gas tax. They ranked the top 5 states with the highest gas tax this way:
Pennsylvania
California
New York
Hawaii
Connecticut
Overdrive rates the states based on overall business burden using numbers from www.truckstop.com and found that southern and Midwestern states dominate the market for freight brokerage-friendly states. According to their rankings, the top 5 states stack up this way, # 1 being most friendly:
Arkansas
Virginia
Tennessee
Wisconsin
And Michigan
You can take a look at the different regulations by agency at the IRS website Trucking Industry Overview. Always keep track of your business expenditures on a daily basis and verify your deductions and tax burdens with a tax professional.
The Size of Your Freight Brokerage Matters
The bigger your freight brokerage the more costs you will have. From hiring more employees, to renting office space and buying office equipment, the size of your freight brokerage matters. In addition to operating costs, your insurance costs will go up as you expand your business as well as:
The Weight of Your Loads
Costs by State For Business Licensing
Local Regulations
And Other Preconditions for Business Operators
Some states have fewer restrictions, regulations, and business operator requirements than others. Overdrive also ranks the worst states for freight operators based on rates for outbound loads. They noted that out of all of the states over the previous two years it has been Colorado who has had the worst rates on outbound loads. On this end it was the northeastern states that topped the list of the worst including:
Rhode Island
Connecticut
West Virginia
Colorado
South Dakota
When you factor in gas taxes, business operator costs, excise tax, and load rates it really does matter where you decide to build your freight brokerage. Individual freight brokers and agents earn higher salaries on average in bigger cities but when comparing apples to apples, freight brokerages located in the south and Midwest have the lightest overall operating burden.
TMS Matters the Most
You can establish your freight brokerage in Colorado and still make more money than a brokerage operating in say, Virginia and save more on overall costs using a top flight transportation management software program. TMS cuts your costs exponentially and reduces overhead to just a few thousand dollars a year by:
Providing Real-Time Data
Reducing Hours Searching on Load Boards
Practically Eliminating Empty Returns
Offering Analytic Tools
Automating Documentation Processing and Transmission