Regulations: Excise taxes on highway tractors, trailers, trucks, and tires

Excise taxes highway tractors, trailers, trucks, tires

The Treasury Department and IRS today released for publication in the Federal Register proposed regulations (REG-103380-05) concerning the retailer’s excise tax imposed on highway-type tractor, trailer, and truck chassis and bodies (“taxable vehicles”) and the manufacturer’s excise tax imposed on taxable tires. The proposed regulations affect manufacturers, producers, importers, dealers, retailers, and users of taxable vehicles and taxable tires.

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The preamble to the proposed regulations [PDF 313 KB] explains that existing regulations do not reflect current law. Therefore, today’s proposed regulations are being issued to reflect changes to the law made since 1982, to address several court decisions, and to remove obsolete regulations, among other measures.

Overview of proposed regulations

Among other things, the proposed regulations 

  • Promulgate rules relating to taxable vehicles to reflect current law
  • Define “highway vehicle” and provide exceptions to the term and include examples
  • Describe recordkeeping requirements to establish gross vehicle weight (GVW) and gross combined weight (GCW)
  • Revise regulations relating to taxable tires to reflect current law
  • Provide model certificates to be used to establish tax-free status with respect to certain sales of taxable vehicles and taxable tires

Background

Generally, section 4051 imposes tax on taxable vehicles and taxable parts and accessories sold on or in connection with the first retail sale of a taxable article, and taxable parts and accessories installed on a vehicle within six months of the vehicle being placed in service.  There are exclusions from the tax imposed by section 4051, including for certain trucks and trailers that are below a certain GVW and tractors that are below a certain GVW and a certain GCW.  

Prior to 1983, the tax had been imposed on the manufacturer of the taxable vehicles and parts.  The Highway Revenue Act of 1982 (“the 1982 Act”) repealed the manufacturer-level tax and replaced it with the current retailer’s tax. The IRS issued temporary regulations in 1982 relating to section 4051.

Generally, section 4071 imposes a tax on taxable tires for each 10 pounds of the maximum rated load capacity that exceeds 3,500 pounds. Congress revised section 4071 in the 1982 Act and completely revised it again in the American Jobs Creation Act of 2004 (“the 2004 Act”).  Previously, for example, the tax had been imposed on the basis of a tire’s weight, not load capacity. However, no regulations were issued to address these statutory revisions.

Proposed rules relating to taxable vehicles

As noted in the preamble, the proposed regulations revise, reorganize, and partially restate existing temporary regulations relating to taxable vehicles. For instance, the proposed regulations revise the definitions of tractor and truck by reference to the primary design of the vehicle, and provide an example. The preamble further notes that the proposed regulations “fill in” a regulatory gap, by providing a definition of trailer that will clarify the determination of whether a vehicle is a taxable tractor.

The proposed regulations supplement the existing definition of first retail sale—the taxable event—to include the resale of an unused article that had been previously sold tax-free in certain cases.

In addition, the proposed regulations provide recordkeeping requirements and model certificates for a number of situations. The proposed regulations provide detailed recordkeeping requirements to establish GVW and GCW, and also provide model certificates to be used to establish tax-free status with respect to certain sales of taxable vehicles, including:

  • Sales of certain vehicles to a dealer for resale or long-term lease
  • Sales of certain incomplete chassis

Definition of “highway vehicle”

The proposed regulations define a highway vehicle as any self-propelled vehicle, or any truck trailer or semitrailer, designed to perform a function of transporting a load over public highways. Exceptions are provided for specified mobile machinery, off-highway vehicles, and non-transportation trailers and semitrailers for purposes of the tax on the sale of taxable vehicles.  The proposed regulations provide two examples that illustrate the application of these rules, relating to off-highway vehicles and mobile machinery. 

Proposed rules relating to taxable tires

Concerning taxable tires, the proposed regulations reflect the statutory changes in the 2004 Act. Thus, the proposed regulations define the terms “rated load capacity” and “super single tire” and address issues such as multiple load ratings and the consequences of tampering with a tire’s maximum load rating. In addition, the proposed regulations provide rules under section 4073 for making tax-free sales of tires for the exclusive use of the Department of Defense and the Coast Guard and provide model certificates to support these sales, among other things.

Effective date

The regulations generally are proposed to apply on and after the date of publication of a Treasury decision adopting these rules as final regulations in the Federal Register.

KPMG observation

Tax professionals note that the IRS and Treasury, by providing proposed regulations under section 4051 (enacted in 1982) and section 4071 (as amended in 2004), have taken an important step in providing clarity to these complicated federal excise taxes.

It is important to note that the definition of highway vehicle applies to a number of federal excise provisions in addition to the excise tax on taxable vehicles—such as the highway use tax (section 4481) and the credits and payments allowed for certain nontaxable uses (sections 6421 and 6427). 

Also note that in some areas, the proposed regulations follow court decisions relating to vehicle classification, while in other areas, the proposed regulations specifically decline to follow court decisions or revenue rulings. Although the regulations are not final at this point, taxpayers that may be affected by these regulations may want to consider reviewing their current vehicle classification policies to identify areas that are inconsistent with the new proposed guidelines.

 

For more information, contact a tax professional with KPMG’s Excise Tax Practice group:

Taylor Cortright | +1 (202) 533 6188 | tcortright@kpmg.com

Deborah Gordon | +1 (202) 533 5965 | dkgordon@kpmg.com

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