By Rose-Michele Nardi
Weiner Brodsky Sidman & Kider
Question: We recently purchased a taxable truck chassis for resale (using a sale for resale certificate), and before we sell the chassis, we want to install on it a boom crane. Will we need to pay Section 4051 tax on the crane as well as the chassis?
Answer: In order to determine whether the crane you install will be treated as a taxable part or accessory, the Internal Revenue Service (IRS) generally follows the guidelines it established in Revenue Ruling 75-88, 1975-1 C.B. 341.
Design and Primary Use
This revenue ruling provides that mast and boom cranes will be presumed to be a taxable part or accessory if they “(1) measure twenty-five feet or less in extended horizontal reach, from the center line of the mast, without readily removable extensions, and (2) can be mounted on trucks for use in loading or unloading such trucks.” Cranes that fall into this category are presumed to be “designed and primarily used for loading and unloading such trucks” and, therefore, are taxable.
On the other hand, if the extended horizontal reach of the crane exceeds 25 feet, without readily removable extensions, then the crane is presumed to be designed and primarily used for a purpose other than loading and unloading the truck on which it is installed, and therefore, is not taxable.
For example, the crane may be designed and primarily used for placing and removing material from specific areas, such as elevated heights or subsurface locations, or for other job-site functions. See Technical Advice Memoranda 9311003 (crane not taxable that has an extended reach greater than 25 feet and the “unloading operation consists of moving material...to a designated area that may be an upper floor of a commercial building, inside a residential building or on the ground” and “may also be used at the job site to unload other trucks...”).
However, please be aware that, regardless of the presumption assigned to a particular crane under Revenue Ruling 75-88, the presumption may always be rebutted by additional evidence. See Revenue Ruling 80-90, 1980-1 C.B. 240 (finding that certain cranes with an extended reach less than 25 feet were not taxable because the primary design of subject cranes was for job-site operations).
As a general matter, if you have a crane that has an extended reach of less than 25 feet, the IRS will treat it as taxable, unless you can demonstrate that the design and primary use of the crane is for a purpose other than merely loading and unloading material from the truck to which the crane is attached to the ground next to the truck (i.e., the design and primary use of the crane is for job-site functions).
Similarly, if the crane has an extended reach greater than 25 feet, it generally will not be subject to Federal Excise Tax (FET) unless, despite the crane’s length, the design and primary use of the crane is for the purpose of loading and unloading material from the truck to which the crane is attached to the ground beside the truck.
Taxpayer's Burden to Prove
In all cases, the taxpayer has the burden of proving that the crane is not subject to FET. Therefore, even though a 27-foot crane is presumed to be nontaxable, you still would have the burden to prove to the IRS that the crane should not be subject to FET.
In addition, please be aware this revenue ruling uses the word “primarily” with respect to the use of the crane for loading and unloading purposes. This means that even if a crane is used to load and unload the truck on which it is attached, it still may be treated as nontaxable if such loading and unloading function is of secondary importance to job-site functions of the crane. See Revenue Ruling 2004-80, at 2 (noting that “‘[p]rimarily’ means ‘principally’ or ‘of first importance’”).
Consult with Your Tax Counsel
This article is intended to provide you with some initial guidance as to the question you present. Determinations regarding the applicability of FET to cranes are highly fact-specific. Therefore, it is strongly recommended that you consult with your tax counsel on this matter.