PLR 200031032: Pavement maintenance vehicles taxable, with equipment exclusions

Plain-English summary

A company built three types of trucks for pavement grinding, marking, and transporting materials. It asked the IRS to treat its Type 1 and Type 2 vehicles as exempt mobile machinery, or alternatively to limit the taxable price to their highway transportation components. It agreed that Type 3 was a taxable highway vehicle and sought the same component limit. The IRS found all three types subject to the section 4051 retail excise tax. Type 1 failed the exception because its chassis could transport another load without substantial structural modification, and Type 2 failed because its tanks carried removable paint or thermoplastic material. The ruling excluded specified jobsite machinery from each type's taxable sales price, while retaining items that served transportation, including the holding tanks and burners or furnaces on Type 2 and the tanks on Type 3. Thus the company's exemption requests for Types 1 and 2 failed, but its alternative price treatment was granted in part.

Ruling snapshot

• Question: Are the three pavement maintenance vehicles taxable under section 4051, and which installed components enter the taxable price?
• Outcome: Mixed. All three vehicles were taxable, while specified nontransportation equipment was excluded from the taxable price.
• Key authorities: IRC §§ 4051(a)(1) and 4052(a)(3); Treas. Reg. §§ 48.4061(a)-1 and 145.4051-1.

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Index Number: 4051.00-00
Number:




                                                CC:DOM:P&SI:8-PLR-100519-00

                                               May 4, 2000




Legend:      Taxpayer      =




Dear

      This letter is in response to a request for a ruling dated December 23, 1999, filed
on Taxpayer’s behalf by its authorized representative. The letter requests that we rule
that:

       (1) The Type 1 vehicle described below is not a taxable vehicle under § 4051 of
the Internal Revenue Code, but if the Type 1 vehicle is held to be a taxable vehicle, only
the chassis and the equipment that contributes to the highway transportation function of
the vehicle is subject to tax.

        (2) The Type 2 vehicle described below is not a taxable vehicle under § 4051,
but if the Type 2 vehicle is held to be a taxable vehicle, only the chassis and the
equipment that contributes to the highway transportation function of the vehicle is
subject to tax.

      (3) That as to the Type 3 vehicle described below, which is a taxable vehicle
under § 4051, only the chassis and the equipment that contributes to the highway
transportation function of the vehicle is subject to tax under § 4051.

       Taxpayer constructs for its own use the three types of vehicles by purchasing
highway truck chassis (with gross vehicle weight ratings of over 33,000 pounds) whose
rear drive train is usually equipped with a high gear reduction rear end that enables the
vehicles to maintain a speed of ½ to 10 miles per hour (mph) while performing their
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jobsite functions and limits the vehicles to speeds of 55 mph. After its purchase of the
chassis, Taxpayer modifies the chassis and installs bodies, machinery, and equipment
on them.

       Type 1 vehicle. This vehicle is designed to transport machinery and equipment
to a jobsite where it is used to remove traffic lines from pavement by grinding them off
the pavement surface, saw lines in pavement, and groove pavement surfaces.

       Taxpayer welds steel plates to the chassis for additional strength and flexibility,
and permanently mounts machinery and equipment, including a 300 horsepower motor
and three 85 horsepower hydraulic motors, a compressor, vacuum fans with housings,
seats and control panels for operation of the machinery, four grinder boxes, two saws,
and grinder and saw box carriages. Taxpayer also installs a water spray system
designed to keep the saw blades from overheating, including a water tank with a
capacity of approximately 270 gallons. Taxpayer also installs vacuum equipment for
vacuuming the debris produced by the grinding process and a collector bin with a
capacity of approximately 250 gallons into which the debris is vacuumed. In
conjunction with the above, the vehicle’s air and gas tanks are repositioned; exhaust
systems, fuel lines and wiring are rerouted; and in some cases the chassis must be
lengthened, cross members moved, and a tag axle added.

       Type 2 vehicle. This vehicle is designed to transport paint or thermoplastic
materials, machinery, and equipment to a jobsite where it is used to mark pavement,
either by applying paint or plastic lines to pavement or by embedding plastic markers to
mark traffic lanes.

        Taxpayer welds metal plates to the chassis for additional strength and flexibility,
and permanently mounts machinery and equipment, including an auxiliary power plant,
hydraulic pumps, hoses, paint or thermoplastic sprayer equipment, and extendable
cartridges that allow the sprayer equipment to be extended. In addition, Taxpayer
installs two to four paint/thermoplastic holding tanks with capacities of 120 to 400
gallons. Taxpayer also installs burners or furnaces to the Type 2 vehicles that apply
thermoplastic materials to keep the materials from congealing. Air and gas tanks are
repositioned and exhaust systems, fuel lines, and wiring are rerouted; in some cases
the chassis must be lengthened, cross members moved, and a tag axle added. The
paint holding tanks are ordinarily filled at the shop before leaving for the jobsite, but
because of the higher temperature needed for thermoplastic material if the jobsite is
distant from the shop the thermoplastic materials will be transported on a Type 3
vehicle described below.

      Type 3 vehicle. This vehicle is designed to transport a significant amount of
removable cargo as well as machinery and equipment to a jobsite and to process
thermoplastic materials at high temperatures for application by a Type 2 vehicle. It also
may mark pavement.
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       Taxpayer installs a subframe or welds steel plates to the chassis and
permanently mounts machinery and equipment, usually including an auxiliary power
plant, hydraulic pumps, hoses, paint or thermoplastic sprayer equipment, and
extendable cartridges that allow the sprayer equipment to be extended from either side
of the vehicle. In addition, Taxpayer may install tanks that hold the paint or
thermoplastic materials. The vehicle also has substantial cargo carrying capacity on
flatbed space. On some of these vehicles Taxpayer permanently installs furnaces for
the processing of thermoplastic materials prior to transfer onto Type 2 vehicles.

       Section 4051(a)(1) imposes a 12 percent excise tax on the first retail sale of
certain articles including automobile truck chassis and bodies (including in each case
parts or accessories sold on or in connection therewith or with the sale thereof).

        Section 4052(a)(3) provides that if a person uses a taxable article before the first
retail sale of such article, then such person shall be liable for tax in the same manner as
if such article were sold at retail by him.

      Section 145.4051-1(a)(2) of the Temporary Excise Tax Regulations under the
Highway Revenue Act of 1982 provides that a chassis or body is taxable under
§ 4051(a)(1) only if such chassis or body is sold for use as a component part of a
highway vehicle (as described in § 48.4061(a)-1(d) of the Manufacturers and Retailers
Excise Tax Regulations).

       Section 48.4061(a)-1(a)(3)(i) includes, as a part of a taxable truck chassis or
body, equipment that is installed on a taxable chassis or body and that contributes to
the highway transportation function of the chassis or body. The regulation includes
loading and unloading equipment as an example of machinery and equipment that
contribute to the highway transportation function of a chassis or body.

        Section 48.4061(a)-1(a)(3)(ii) provides that amounts charged for equipment
installed on a taxable chassis or body are not part of the taxable sales price if (A) the
equipment does not contribute to the highway transportation function of the chassis or
body and (B) the reasonableness of the charge is supportable by adequate records.

       Section 48.4061(a)-1(d)(1) defines a "highway vehicle" as any self-propelled
vehicle, or any trailer or semitrailer, designed to perform a function of transporting a
load over public highways, whether or not also designed to perform other functions, but
does not include a vehicle described in § 48.4061(a)-1(d)(2).

      Section 48.4061(a)-1(d)(2)(i) provides that a self-propelled vehicle, or trailer or
semitrailer, is not a highway vehicle if it (A) consists of a chassis to which there has
been permanently mounted (by welding, bolting, riveting, or other means) machinery or
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equipment to perform a construction, manufacturing, processing, farming, mining,
drilling, timbering, or operation similar to any one of the foregoing enumerated
operations, if the operation of the machinery or equipment is unrelated to transportation
on or off the public highways (the A test), (B) the chassis has been specially designed
to serve only as a mobile carriage and mount (and a power source, where applicable)
for the particular machinery or equipment involved, whether or not such machinery or
equipment is in operation (the B test), and (C) by reason of such special design, such
chassis could not, without substantial structural modification, be used as a component
of a vehicle designed to perform a function of transporting any load other than that
particular machinery or equipment or similar machinery or equipment requiring such a
specially designed chassis (the C test).

      Section 48.4061(a)-1(e)(1) provides the general rule that the sale of a chassis or
body shall be taxable if the chassis or body is, in any sense, suitable for use as a
component part of a highway vehicle.

        Rev. Rul. 80-237, 1980-2 C.B. 306, holds that the sale of certain paint striping
units mounted on tax-paid chassis are taxable as component parts of vehicles designed
to transport a load over the public highways, but that the cost of certain equipment
(including a heating system designed to apply the paint rather than to preserve the paint
or further liquify it for unloading, jacketed hoses, manifold, gun carriages, spray guns,
intercom system, flashing warning lights and floodlights, mechanical pointer, footage
counter, dusting system, cab console control, intermittent line mechanism, control panel
seats, flashing signboard, speed meter, and optical pointer) is not part of the taxable
sales price provided the charges are properly supported. The ruling further holds that a
power take-off (PTO) that primarily operates the paint fill pumps is part of the taxable
sales price but a PTO that primarily operates equipment associated with spraying paint
at the jobsite is not included in the taxable sales price. Further, an air compressor that
primarily powers an agitator and pressurizes the tanks is part of the taxable sales price,
but an air compressor that primarily operates equipment associated with spraying paint
at the jobsite is not part of the taxable sales price.

        Rev. Rul. 81-72, 1981-1 C.B. 497, holds that a thermoplastic striping unit that
applies line markings to the road and transports thermoplastic materials to the jobsite is
a component part of a vehicle designed to transport a load over the public highway, and
the platform, spray pot, bead tank, and tac coat are designed to transport thermoplastic
material to the jobsite and thus constitute a body. The ruling further holds that a hot oil
heating system that preserves the thermoplastic material at a high temperature so that
it may be readily unloaded, and an air compressor that forces the material out, both
assist in unloading the vehicle and contribute to the highway transportation function and
are considered part of the body under § 48.4061(a)-1(a)(3). Further, certain equipment
(including jacketed hoses, manifolds, spray guns, spray gun carriages, intercom
system, flashing warning lights and floodlights, mechanical pointer, footage counter,
cab console control, intermittent line mechanism, control panel seats, flashing
                                            -5-


signboard, speed meter, and optical pointer) is designed to apply the material rather
than transport or load or unload it, and thus is not part of the taxable sales price
provided the reasonableness of the charges is supported by adequate records.

       Rev. Rul. 79-423, 1979-2 C.B. 386, states that a chassis meets the C test of
§ 48.4061(a)-1(d)(2)(i) if it has been specially designed to hold the particular machinery
or equipment, to the extent that it is substantially structurally different than a chassis
that would ordinarily be used for hauling a load other than that particular machinery or
equipment or similar machinery or equipment requiring such a specially designed
chassis.

       The Type 1 vehicle is designed to perform a function of transporting a load over
the highway. Thus, it is a "highway vehicle" as that term is defined in
§ 48.4061(a)-1(d)(1) and is subject to the § 4051 tax unless the vehicle is within the
exception provided under § 48.4061(a)-1(d)(2)(i) for certain specially designed mobile
machinery. That section sets forth the three-part test stated above.

        The chassis of the Type 1 vehicle fulfills the A and B tests of § 48.4061(a)-
1(d)(2)(i). As to the A test, it consists of a chassis to which there has been permanently
mounted machinery or equipment to perform a construction operation that is unrelated
to transportation. Thus, the Type 1 vehicle meets the A test. As to the B test, which
limits the exception to vehicles whose chassis have been specially designed to serve
only as a mobile carriage and mount (and a power source, where applicable) for the
particular machinery or equipment involved, the small size of the water tank and
collector bin, the frequent need to replenish the water tank and empty the collector bin
while performing a typical job, and their function, support that they are jobsite reservoirs
rather than cargo transporters. Thus, the Type 1 vehicle meets the B test.

       In order to fulfill the requirements of the C test, it must be shown that the
specially designed chassis could not, without substantial structural modification, be
used as a component of a vehicle designed to transport a load other than the
machinery or equipment that they were designed to transport. Rev. Rul. 79-423
indicates that the C test is met if the chassis has been specially designed to hold the
particular machinery or equipment and is substantially structurally different than a
chassis that would ordinarily be used for hauling some other load. Taxpayer asserts
that because of the modifications to the chassis the Type 1 vehicle meets the C test.
Its chassis could not, without substantial structural modification, be used as a
component of a vehicle designed to transport a load other than the machinery or
equipment that it was designed to transport. Specifically, Taxpayer asserts that to
convert the Type 1 vehicle to a conventional transporter all of the machinery and
equipment would have to be removed and the rear drive train replaced. However, the
removal of the machinery and equipment does not constitute structural modification of
the chassis. Moreover, the rear drive train would not need to be replaced and the other
modifications made to the chassis of the Type 1 vehicle would not need to be reversed
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in order for it to be used for transporting a removable load. Thus, the Type 1 vehicle
does not meet the requirements of the C test. Accordingly, the Type 1 vehicle is not
described within the exception provided in § 48.4061(a)-1(d)(2)(i) for certain specially
designed mobile machinery and is subject to the tax imposed by § 4051(a)(1).

        The Type 2 vehicle is designed to perform a function of transporting a load over
the highway. Thus, the Type 2 vehicle is a "highway vehicle" as that term is defined in
§ 48.4061(a)-1(d)(1) and is subject to the § 4051 tax unless each vehicle is within the
exception provided under § 48.4061(a)-1(d)(2)(i) for certain specially designed mobile
machinery. As to the A test, it consists of a chassis to which there has been
permanently mounted machinery or equipment to perform a construction operation that
is unrelated to transportation. Thus, the Type 2 vehicle meets the A test. As to the B
test, as indicated above, it limits the exception to vehicles whose chassis has been
specially designed to serve only as a mobile carriage and mount (and a power source,
where applicable) for the particular machinery or equipment involved. However, as the
tanks installed on the Type 2 vehicles are designed to transport a removable load, paint
and thermoplastic material, the Type 2 vehicle is not constructed only as a mobile
carriage, mount, and power source for the equipment. See Rev. Rul. Rev. Rul. 80-237
and Rev. Rul. 81-72. Thus, the Type 2 vehicle does not meet the requirements of the B
test. Accordingly, the Type 2 vehicle is not described within the exception provided in
§ 48.4061(a)-1(d)(2)(i) for certain specially designed mobile machinery and is subject to
the tax imposed by § 4051(a)(1).

      In your ruling request you agree that the Type 3 vehicle is designed to transport
cargo over the highway and is thus a taxable highway vehicle subject to the tax
imposed by § 4051(a)(1).

       Under § 48.4061(a)-1(a)(3) and the above-cited revenue rulings, certain
components of the vehicles do not contribute to the highway transportation function and
are thus not part of the taxable sales price. For Type 1 vehicles excludable
components include the four motors, the compressor, the vacuum fans with housing,
the control panels for operation of the machinery, and the grinder and saw box
carriages. The vacuum equipment, the collector bin, the water tank, and the water
spray system are also not part of the taxable sales price. For Type 2 vehicles
excludable components include the auxiliary power plant, hydraulic pumps, hoses, paint
or thermoplastic sprayer equipment, and extendable cartridges (but not the
paint/thermoplastic holding tanks or the burners or furnaces). For Type 3 vehicles
excludable components include the auxiliary power plant, hydraulic pumps, hoses, paint
or thermoplastic sprayer equipment, the extendable cartridges, and any furnaces (but
not the tanks).

      This ruling is based solely on the facts as presented, Taxpayer’s representations,
and the analysis set forth above. This ruling is directed only to the taxpayer who
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requested it. Section 6110(k)(3) provides that it shall not be used or cited as precedent.


                                  Sincerely yours,

                                  Assistant Chief Counsel
                                  (Passthroughs and Special Industries)


                           By:
                                  Richard A. Kocak
                                  Chief, Branch 8




Enclosures (2):
      Copy of this letter
      Copy for § 6110 purposes