TAX FILE: Rulings on 12% retail tax

The IRS and a federal appeals court have recently addressed the ever-thorny issue of which vehicles are subject to the 12% “retail” tax on new equipment.

In Technical Advice Memorandum 200403001, the IRS was asked if “a dump truck designed with rugged heavy duty features [for] transporting coal both at the mine site and from the mine site to a tipple” is an off-highway vehicle exempt from tax. The vehicle has rear tires that extend 2-4 in. beyond the normal 102-in. width, and the buyer submitted a statement that the vehicle was being purchased for off-road use. The IRS concluded that the extra width was neither a “special design” nor a “substantial impairment” that qualified the truck for exclusion, and that the purchaser's statement was irrelevant. Thus, the truck was taxable.

In Horton Homes v. U.S., the 11th Circuit Court of Appeals ruled that “toters” used to move mobile homes from the factory to a retail dealer are not taxable. A district court had ruled that the toters were tractors because they towed the homes.

But the higher court said that since 1938 the law has consistently said the 12% tax applies to “tractors of the kind chiefly used for highway transportation in combination with a trailer or semi-trailer.” The appeals court ruled that a mobile home is not a trailer or semi-trailer and, therefore, the toter was not a taxable tractor.