Category Archives: Transportation

FAA Issues Proposed Regulations on the Commercial Use of Drones

By James Boyan, Esq.

On February 15, 2015, the Department of Transportation – Federal Aviation Administration (“FAA”) proposed a set of regulations that would allow drones to be used for commercial purposes.  The proposal would allow businesses to use small unmanned aircraft systems (i.e., drones) that weigh less than 55 pounds during daylight hours (i.e., official sunrise to official sunset, local time).

Under the proposed rules, the person actually flying the drone would be known as an “operator.”  To be certified as an operator, an individual would have to be at least 17 years old and pass an “initial aeronautical knowledge test” at an FAA-approved testing center.  The fee for obtaining an operator’s certificate will be approximately $200.  To maintain the certification, an operator will have to pass the FAA’s knowledge test every 24 months.  However, a drone operator would not be required to obtain any further certifications such as a pilot’s license.

The proposed regulations will require operators to maintain a “visual line of sight” of the drone at all times.  The rules would allow, but not require, and operator to work with a visual observer who would maintain constant visual contact with the aircraft.  However, the operator would still need to be able to see the drone at all time with unaided vision (except for corrective lenses).  A first-person view camera will not satisfy the line of sight requirement in the proposed regulations but a camera could be used as long as the sight requirement is otherwise satisfied.

The proposed regulations contain the following restrictions on the commercial use of drones:

  • The operator must discontinue flight when continuing to fly would pose a hazard to other aircraft, people or property;
  • A drone may not fly over people, except those directly involved with the flight;
  • Drone flights should be limited to 500 feet in altitude and no faster than 100 mph;
  • Operators must keep their drones out of airport flight paths and restricted airspace and obey any FAA temporary flight restrictions; and
  • Operators are not permitted to drop any objects from their drones.

The FAA’s proposed regulations will also require operators to:

  • Conduct a pre-flight inspection of the drone prior to each operation;
  • Report any accidents that result in injury or property damage to the FAA; and
  • Ensure that all drones have appropriate aircraft markings.

The FAA is also considering a separate set of rules for “micro-drones” (i.e., drones that weigh less than four pounds). Under those rules, operators would not have to pass any kind of test. Instead, they would only have to submit a written statement to the FAA certifying that they are familiar with basic aviation safety measures.

Businesses that currently use drones or plan to do so in the future should closely monitor the FAA’s proposed regulations.

New York Law Could Impose Personal Liability for Misclassifying Drivers as Independent Contractors

By Sean Mack, Esq.

On January 10, 2014, New York enacted the Commercial Goods Transportation Industry Fair Play Act.  The Act amends New York’s labor law to create a presumption that operators of commercial motor vehicles (defined as vehicles in excess of 10,000 lbs under N.Y. Transportation Laws) are employees, unless the employer can demonstrate that the operator can satisfy either the “separate business entity test” or the “independent contractor test.”

The “Separate Business Entity Test” requires the trucking company to demonstrate that the operator is a separate business entity (e.g., a corporation, partnership, LLC or sole proprietorship) and compliance with each of 11 factors: (1) the business entity is performing the service free from the direction or control over the means and  manner of providing the  service, subject  only  to  the  right  of  the  commercial goods transportation contractor for whom the service  is  provided  to  specify  the  desired result or federal rule or regulation; (2) the business entity is not subject to cancellation or destruction upon severance of the relationship with the commercial goods transportation contractor; (3) the business entity has a substantial investment of capital in the business entity, including but not limited to ordinary tools and  equipment; (4) the business entity owns or leases the capital goods and gains the profits and bears the losses of the business entity; (5) the business entity has an option to make its services available to the general public or the business community on a continuing basis; (6) the business entity includes services rendered on a federal income tax schedule as an independent business or profession; (7) the business entity performs services for the commercial goods transportation contractor pursuant to a written contract,  under  the business entity’s name, specifying their relationship to be as independent contractors or separate business entities; (8) when the services being provided require a license or permit, the business entity pays for the license or permit in the business entity’s name  or, where permitted by law, pays for reasonable use of the commercial goods transportation contractor’s license or permit; (9) if necessary, the business entity hires its own employees, subject to applicable qualification requirements or federal or state laws, rules or regulations, pays the employees  without reimbursement from the commercial  good  transportation contractor and reports the employees’ income to the internal revenue service; (10) the commercial goods transportation contractor does not require that the business entity be represented as an employee of the commercial goods transportation contractor to its customers; and (11) the business entity has the right to perform similar services for others on whatever basis and whenever it chooses.

The “independent contractor test,” is essentially the ABC test followed in a number of jurisdictions, which requires demonstrating that each of the following are satisfied: (a) the individual is free from control and direction in performing the job, both under his or her contract and in fact; (b) the service must be performed outside the usual course of business for which the service is performed; and (c) the individual is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.

New York has not followed the ABC test, so it is unclear whether New York courts will broadly or narrowly interpret each of those factors.

One of the most important changes in the Act is the potential for personal civil and/or criminal liability of owners and managers of companies that improperly classify operators as independent contractors.  While the Act does not authorize operators to bring lawsuits personally against trucking companies or their owners; operators who believe they are wrongly classified can file complaints with the N.Y. Department of Labor.  If workers are deemed to be misclassified, civil penalties up to $1,500 for the first offense and up to $5,000 for any subsequent offense within 5 years can be imposed.  If it is determined that the misclassification is willful, criminal penalties, including up to 30-days imprisonment, and a $25,000 fine for the first offense.  Company officers, directors and shareholders who control at least 10% of the company stock also can be held personally liable if found to have knowingly permitted the company to misclassify employees.

Given the serious consequences for violating the new Act, New York companies should review their relationships with their operators and determine whether they are properly classified.

Tax Court Finds Inland Storage and Repair Services Are Tax Exempt Services At A Marine Terminal Facility

By Sean Mack, Esq.

On July 19, 2013, the Tax Court of New Jersey issued a decision, which confirms that fees and charges for intermodal container storage services and related chassis repair services in the Newark/Elizabeth Port District are exempt from New Jersey’s Sales and Use Taxes.

In response to a challenge to its tax assessment by Plaintiff, Ironbound Intermodal, the New Jersey Tax Court had its first opportunity to interpret an exemption to New Jersey’s sales and use tax statute, which exempts receipts for certain services performed at “marine terminal facilities.”

In relevant part, the marine terminal facilities exemption provides:

Receipts from sales or charges for repairs, alterations or conversion of commercial ships or any component thereof including cargo containers of any type whatsoever, … machinery, apparatus and equipment for use at a marine terminal facility in loading, unloading and handling cargo carried by those commercial ships, … and storage and other services rendered with respect to such loading, unloading and handling cargo at a marine terminal facility … are exempt from the tax imposed under the Sales and Use Tax Act.  (N.J.S.A. 54:32B-8.12)

The plaintiff’s business involves the storage of intermodal containers, and chassis maintenance and repair services, which are required to keep the chassis in compliance with state and federal regulations.

The plaintiff’s facilities while located in Newark, are outside of Port Newark, are not located on the waterfront, do not have piers, wharves or the ability to load and unload cargo containers on and off ocean going vessels.  While those same services provided within Port Newark are tax exempt, the Division of Revenue deemed Plaintiff to be ineligible for the exemption because it was outside the Port and could not provide stevedoring services.

The term “marine terminal facility” is not defined in the Sales and Use Tax Act.  In reaching its conclusion, the court explained that the exemption was enacted to encourage cargo container owners to come to New Jersey for their repairs and maintenance, because New Jersey had been losing that business to New York companies, whose services could be provided tax free.

The tax court concluded that the plaintiff’s facilities in Newark were “marine terminal facilities” because they were “structures, facilities and improvements necessary or convenient to the accommodation of steamships or other vessels and their cargoes.”

Because the court found that plaintiff’s facilities constitute marine terminal facilities, its container storage services and chassis repair labor charges are exempt from taxation under N.J.S.A. 54:32B-8.12.

Other operators of cargo container storage and chassis repair and maintenance services in the Newark/Elizabeth area should look to this decision as precedent for challenging sales and use tax assessments.  [Note, the Division of Revenue has appealed the tax court’s ruling]