Skip to main content
IMA Tax Policy Blog

IRS Issued Proposed Regulations On Truck, Tractor And Trailer Excise Taxes

RSM TAX ALERT — New proposed excise tax regulations include definition of highway vehicle

On Mar. 31, 2016, Treasury and the IRS issued proposed regulations (REG-103380-05) relating to excises taxes imposed on sales of highway trucks, tractors, trailers, and tires; the use of heavy vehicles on highways; and the definitions of highway vehicle and mobile machinery as they relate to the above taxes. The proposed regulations affect manufacturers, producers, importers, dealers, retailers, and users of certain highway trucks, tractors, trailers and tires beginning on and after the date the rules are published in the Federal Register as final regulations.

The proposed regulations are meant to encompass legislative changes and judicial rulings that have occurred since prior temporary regulations were issued (from 1982 forward). These proposed regulations also restate certain portions of the previously issued temporary regulations, providing the public with the opportunity to comment on those older provisions.

The proposed regulations contain many provisions; this article is meant to highlight the three main categories covered: (1) highway vehicle and mobile machinery definitions, (2) retail excise tax on trucks, tractors, and trailers, and (3) taxable tires.

Highway vehicle and mobile machinery definitions

The definitions of highway vehicle and mobile machinery provided under proposed Reg. section 48.0-4 provides comprehensive definitions partially restated from statutes and is modified to integrate administrative inconsistencies that have occurred since the inception of the relevant statutes.

Highway vehicle

Proposed Reg. section 48.0-4(b)(1) defines a highway vehicle as any self-propelled vehicle, or any truck trailer or semitrailer, which is designed to perform a function that includes transportation of a load over public highways. For purposes of this definition, a vehicle is defined as a chassis, or a chassis and a body, but does not include the vehicle’s load. In determining whether a vehicle falls into the highway vehicle definition, it does not matter whether (see below for the exception in the case of mobile machinery):

The vehicle can perform functions other than solely transporting a load over a public highway;

The vehicle was designed solely to transport a particular kind of load; or,

Any machinery specifically designed to be transported by the vehicle, is mounted to the vehicle

The proposed regulations provide examples of vehicles that are and are not considered as “designed to perform a function of transporting a load over the public highways,” under proposed Reg. section 48.0-4(b)(2)(iii) and (iv), respectively.

Proposed Reg. section 48.0-4(b)(3) contains exceptions to the highway vehicle definition. If a vehicle is specifically designed, on the basis of its physical characteristics, for the primary function of transporting a specific type of load over anything other than a public highway, and because of that specific design, the vehicle’s ability to transport a load over a public highway would be substantially limited or impaired, then the vehicle is an off-highway vehicle and is not subject to tax under proposed Reg. section 48.0-4(b)(3)(i). The other exceptions to the highway vehicle definition are for truck trailers or semitrailers specially designed to function solely as an “enclosed stationary shelter for the carrying on of an off-highway function at an off-highway site,” and for mobile machinery (see below).

The proposed regulations also add an example to illustrate the off-highway transportation exception to the highway vehicle definition focusing on fact patterns similar to those found in Flow Boy, Inc. v. United States, 54 A.F.T.R. 2d 84-6545 (10th Cir. 1984), and Gateway Equipment Corp. v. United States, 247 F. Supp. 2d 299 (W.D.N.Y. 2003). (Proposed Reg. section 48.0-4(c) Example 1.)

The proposed regulation uses an easier to read format of the highway vehicle definition found under the regulations for repealed section 4061. The highway vehicle and corresponding off-highway vehicle definitions are consistent with the definitions for those terms found in other sections of the code. It is important to note that this proposed regulation applies for purposes of part 41 (“Excise Tax on Use of Certain Highway Motor Vehicles”), which includes taxes on the use of motor vehicles, and part 48 (“Manufacturers and Retailers Excise Taxes”), which includes taxes and credits on fuels, certain vehicles sold at retail, and tires.

Mobile Machinery

The highway vehicle definition provides an exception for a vehicle that is mobile machinery defined in proposed Reg. section 48.0-4(b)(3)(iii). Mobile machinery is any vehicle made up of a chassis:

To which there has permanently been mounted an item of machinery or equipment used to perform “a construction, manufacturing, processing, farming, mining, drilling, timbering, or similar operation” so long as it is unrelated to transportation on or off the public highways,

That has been specially designed to serve solely as a mobile carriage, mount, and, if applicable, a power source, for that machinery; and,

Due to the nature of the special design of the chassis, it could not, without substantial structural modification, be used as a component of a vehicle designed to transport any other load other than the machinery or equipment for which it was designed.

The proposed regulations add an example to illustrate the mobile machinery exception to the highway vehicle definition focusing on facts similar to those found in Florida Power & Light Co. v. United States, 375 F.3d 1119 (Fed. Cir. 2004).

Retail tax on trucks, tractors, and trailers

The proposed regulations reorganize and partially restate the existing temporary regulations on the retail tax on trucks, tractors, and trailers. Proposed Reg. section 48.4051-1(a) states that the tax is imposed on the first retail sale of any automobile truck chassis or body, truck trailer and semitrailer chassis and body, and tractors that are generally used for highway transportation in combination with a truck trailer or semitrailer. The tax is also imposed on any parts or accessories sold in connection with the sale of those taxable articles.

The proposed regulations include definitions and special rules for determining the applicability of the tax. The special rule provided under proposed Reg. section 48.4051-1(d)(1) recharacterizes the taxability of chassis and bodies when they are component parts of a highway vehicle. This proposed rule conflicts with Rev. Rul. 69-205 (1969-1 CB 277), which Treasury says will be obsoleted after promulgation of the regulations as the revenue ruling is out of date and inconsistent with the language of section 4051(a)(1). The proposed rule provides that if a chassis (or body) is a component part of a highway vehicle, the taxability of the chassis (or body) is determined independent of, and without regard to, the body (or chassis) installed on the chassis (or body). The proposed regulations include a model certificate for a taxpayer-seller to retain in order to establish the tax status of any incomplete chassis cab. No tax is imposed on the sale of an incomplete chassis cab when accompanied by a qualifying certificate. Without a certificate, the seller is generally required to treat the sale of an incomplete chassis cab as a taxable sale of a tractor. This rule is consistent with existing regulations and the interpretation of the court in Freightliner of Grand Rapids, Inc. v. United States, 351 F. Supp. 2d 718 (W.D. Mich. 2004).

The definitions for tractor and truck are revised using references to the primary design of the vehicle. The proposed regulations define “primarily designed” stating that it does not require that the vehicle was exclusively designed for a specific purpose but it depends more upon which purpose is of greater importance. This definition is consistent with, and reflects the test used in, Rev. Rul. 2004-80 (2004-2 CB 164). Further, the proposed regulations provide an example for determining if a tractor or truck was primarily designed as such under proposed Reg. section 48.4051-1(g).

Definitions for truck trailers and semitrailers are added under proposed Reg. section 48.4051-1(e)(4)(ii) and (iii), respectively. A truck trailer is defined as a trailer that carries all of its weight and the weight of its load on its own chassis. A semitrailer is defined as a trailer that has a front end designed to be attached to and rest upon the vehicle that is towing it. A semitrailer is designed so that a portion of its weight and the weight of the load it is carrying is partially supported by the vehicle towing it. The new semitrailer definition serves to include a specific type of vehicle previously excluded from the definition of semitrailer through judicial opinion. In Horton Homes, Inc. v. United States, 357 F.3d 1209 (11th Cir. 2004), the plaintiff purchased vehicles known as “toters” used to transport manufactured homes from the plant where they are built to the retailer dealer where they are subsequently sold. The IRS determined that these vehicles were taxable tractors for purposes of section 4051(a)(1)(E). The court, however, in deciding that the manufactured homes were not trailers or semitrailers based on plain dictionary definitions of the terms, determined that the toters were not tractors. The court reasoned that because the statue and the regulations were silent on the proper definition of trailers and semitrailers, it is appropriate to rely on dictionary definitions for guidance.

Treasury is using this opportunity to propose regulations that would, in effect, overrule the court’s interpretation in Horton Homes, changing the application of section 4051 for taxpayers engaged in business that require the purchase of toters or similar vehicles. Taxpayers may continue to rely on the holding in Horton Homes until such time as this section of proposed regulations are made final.

Taxable tires

Proposed Reg. section 48.4071-1 provides rules for the imposition of tax on tires. The proposed rules reflect previous changes made to section 4071 which imposes an increase to tax on taxable tires for each 10 pound increment that the maximum rated load capacity of the tire exceeds 3,500 pounds. The proposed regulations also provide rules for making tax-free sales of tires to the Department of Defense and the Coast Guard. Further, the proposed regulations provide model exemption certificates to document these sales, as well as sales for use in further manufacture that meet the requirements of section 4221(e)(2), and sales of tires for use on intercity, local, and school buses under section 4221(e)(3).

Final thoughts

This article is meant to provide a basic understanding of the three main areas discussed in the proposed regulations and the corresponding preamble. This is not an exhaustive discussion of the proposed regulations and many rules that merely restate the statutes or provide general definitions are not included. For example, the restating of the statutory exclusions for the first retail tax on heavy trucks, trailers, and tractors below certain weight limits, the rules requiring the taxation of accessories and parts that do not meet the $1000 exception, and the precise definition of gross vehicle weight are not addressed in this article for the sake of brevity.

Any comments on the proposed regulations must be received in writing or electronic form by June 29, 2016. A public hearing has not been scheduled, however, a request for a hearing can also be made prior to June 29, 2016.

These proposed regulations are partially consistent and in part a departure from existing rules on the application of excise taxes to trucks, tractors, and trailers. As such, effected taxpayers should contact their tax advisors to discuss the consequences of these proposed regulations.

Source: RSM McGladrey, an IMA member company