Determining crane taxability

From an NTEA member How can we determine if the crane we install on a taxable truck chassis is subject to tax under Internal Revenue Code (IRC) 4051? Generally, when determining if a part or accessory (such as a crane) is taxable, a taxpayer looks to whether the part or accessory contributes primarily to a transportation function (which includes loading and unloading) or a job-site function. Internal Revenue Service (IRS) offers additional guidance for determining whether or not a crane is taxable. Under Revenue Ruling 75-88, IRS generally will treat a crane as a taxable part/accessory if it (1) has a horizontal reach of 25 feet or less, excluding readily removable extensions, and (2) can be used to load/unload the truck on which the crane is attached. On the other hand, IRS generally will not treat a crane as a taxable part/accessory if it is longer than 25 feet without readily removable extensions. (Revenue Ruling 75-88 was adopted under the predecessor manufacturers’ tax, IRC 4061, but IRS also has applied these guidelines under the 4051 tax in technical advice memoranda (TAMs) and a letter ruling. Although TAMs/letter rulings cannot be relied upon by any taxpayer other than the recipient of the ruling, such rulings provide guidance as to how IRS will likely rule under similar circumstances.) Therefore, the starting point for determining whether or not a crane will be taxable is to look at the length of its extended reach. However, the ultimate decision may depend on specific facts related to the crane. This is because the general guidelines (i.e., presumptions) under Revenue Ruling 75-88 for determining whether or not a crane is taxable may be rebutted. So, if a short crane (25 feet or less) has special features indicating it is primarily designed for job-site functions, rather than unloading the truck to which it is attached, IRS likely will determine the presumption of taxability has been rebutted and treat the crane as nontaxable. See Revenue Ruling 80-90 (noting cranes less than 25 feet are nontaxable because “the cranes are primarily designed for job-site operations rather than as typical loading and unloading cranes”). Similarly, if a crane in excess of 25 feet were designed simply for loading and unloading the truck to which it was attached, IRS likely would determine the presumption of nontaxability was rebutted and treat the crane as taxable. A taxpayer always has the burden in a tax audit to demonstrate it correctly treated an item as nontaxable. If a taxpayer takes the position that a short crane is nontaxable (i.e., a position inconsistent with the general presumptions of Revenue Ruling 75-88), the taxpayer should expect its position to be challenged in an audit and be prepared to defend it. As noted, a shorter crane is not automatically taxable; the presumption of taxability can be rebutted under certain circumstances. Additionally, a crane that loads/unloads the truck to which it is attached (i.e., has a transportation function) is not automatically taxable. IRS appears to recognize a distinction between simple loading/unloading (i.e., between the truck and ground near it) and specialized loading/unloading (e.g., between the truck and elevated or subsurface locations). IRS previously ruled certain long cranes to be nontaxable, even though they loaded/unloaded the trucks to which they were attached. See TAM 9311003 (“the excessive length of the cranes indicates that their primary function is to place the transported materials on the roof or an upper floor of a building rather than to merely unload the vehicles”). See also TAM 9332001 (cranes in excess of 25 feet “unload the vehicle upon which they are mounted” but were not taxable because “the excessive cost and length of the cranes indicate that their primary function is to place the transported material at specific job-site locations rather than to merely unload the vehicles”). In other words, IRS determined in those rulings that the presumption of nontaxability for long cranes was not rebutted, even though the cranes unloaded the trucks to which they were attached. Since the determination of whether or not a crane is taxable can be fact-specific, taxpayers should consult with their tax advisors prior to treating a crane as nontaxable. This is especially the case where a taxpayer is taking a position contrary to the presumptions in Revenue Ruling 75-88 (e.g., a short crane — 25 feet or less — is nontaxable).

Determining crane taxability

Recommended Articles

FET on cranes

Applying FET to spare/replacement parts and accessories

Applying FET to spare/replacement parts and accessories