Mobile machinery exception requirements

From an NTEA member Can you explain the basic requirements (and potential traps) of the so-called mobile machinery exception? The mobile machinery exception focuses only on the chassis — not the body. In order to meet this exception, the vehicle chassis must satisfy three requirements — each of which, as interpreted by Internal Revenue Service (IRS), has potential hidden traps. In general, the three requirements of the mobile machinery exception are: The chassis must have job-site equipment permanently mounted to it, and the operation of such equipment must not relate to transportation. Potential trap: If the mounted equipment is related to loading and unloading, this exception may not apply because IRS treats loading/unloading functions as related to transportation. The chassis is specially designed to be used solely as a mobile mount for the equipment. Potential trap: IRS previously interpreted this provision to mean a chassis cannot have a pintle hook or any significant cargo carrying capacity (e.g., substantial storage compartments). IRS reasoned if the chassis can tow or carry a load other than the mounted equipment, then it is not “solely” designed for use as a mobile mount. Due to the special design, in order to be designed to carry another load, substantial chassis structural modification would be necessary. Potential trap: If a chassis can carry another load without substantial structural modification, even if doing so would be uneconomical, this exception may not apply. At least one court previously ruled use of the vehicle to carry another load need not be an economical use (e.g., in that case, the taxpayer argued that, without substantial structural modifications, fuel efficiency would require the vehicle to operate at too low a speed to be economical.) Arguably, the court’s conclusion is at odds with the language in this requirement that refers to a vehicle “designed” to transport another load, rather than merely capable of being used to transport another load. Nevertheless, that was the court’s ruling. Before relying on the mobile machinery exception, review these requirements with your tax counsel. IRS applies this exception narrowly (i.e., it interprets the requirements in a manner that makes it less likely a chassis will satisfy the exception). In fact, in 2002, IRS tried (unsuccessfully) to eliminate it altogether. Sellers should be aware the requirements for satisfying this exception are highly fact-specific. Therefore, guidance relating to different vehicles may be unreliable; you need to ensure you’re comparing apples to apples as to the relevant facts. Sellers relying on the mobile machinery exception should exercise additional caution if seeking guidance from rulings or advice issued in the 1990s or before. IRS did not always interpret this exception so narrowly. Therefore, older rulings may have been subsequently revoked or no longer reflect how IRS is likely to rule today in a similar situation. (Remember, a taxpayer is not entitled to rely on a letter ruling or technical advice memorandum issued to someone else.) Similarly, other prior IRS advice may no longer reflect current views regarding the exception. This is a difficult area to effectively manage Federal Excise Tax (FET) risk. However, if you’re selling only the chassis or body (not the completed vehicle), and the purchaser advises the chassis or body will be used as part of a vehicle that satisfies the mobile machinery exception, consult your tax advisor. You may be able to manage your tax risk for those sales by obtaining a specific certificate from the purchaser. However, in order for the certificate to be valid, it must satisfy certain requirements.

Mobile machinery exception requirements

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