Is the mobile machinery exemption for FET still valid?

From an NTEA member Does the so-called mobile machinery exemption for Section 4051 tax (Federal Excise Tax or FET) still exist for certain vehicles on which job-site machinery is permanently mounted? Technically, yes, but numerous requirements must be satisfied to qualify for the exemption, and Internal Revenue Service (IRS) has interpreted them very strictly. Therefore, as a practical matter, few vehicles will likely satisfy mobile machinery exemption requirements. About 20 years ago, IRS started to strictly interpret requirements of the mobile machinery exception in its Treasury Regulations, and to revoke prior letter rulings in which IRS had determined the mobile machinery exception was satisfied. IRS also proposed to eliminate the exception altogether in 2002. Ultimately, it was saved from elimination and codified as a statutory exemption at Internal Revenue Code (IRC) 4053(8). (The language of the mobile machinery exemption is substantially identical to language of the prior regulatory exception.) Even though the mobile machinery exemption still exists, IRS can be expected to interpret exemption requirements so that few vehicles satisfy them. In addition, in two cases, the court agreed with IRS’s narrow interpretation of the requirements of a substantially identical exemption that applied to the fuel excise tax and highway use tax. See Shlumberger Tech Corp & Subsidiaries v. United States, 55 Fed. Cl. 203 (2003); Florida Power & Light Co. v. US, 56 Fed Cl. 328 (2003), aff’d 375 F.3d 1119 (Fed Cir.2004). Based on language of the FET mobile machinery exemption (and IRS’s expected strict interpretation of the exemption requirements), following are examples of vehicles that likely would not satisfy the exemption, even though job-site machinery is permanently mounted to the vehicle. Any chassis on which the mounted equipment/machinery is used for loading and unloading, even if the primary function of the equipment is for a different purpose, likely would not satisfy the mobile machinery exemption. Any chassis with the ability to haul or tow any cargo other than the permanently mounted machinery/equipment likely would not satisfy the mobile machinery exemption. This means a chassis equipped with a fifth wheel, tank, rack for additional equipment/tools or pintle hook likely would not satisfy the mobile machinery exemption. Similarly, it means a chassis with virtually any excess space or storage compartments (other than, perhaps, space for purely incidental cargo, such as safety equipment, clothing or tools) likely would not satisfy the mobile machinery exemption. Any chassis that could be used to transport a load other than the mounted machinery/equipment — without substantial, structural modification — likely would not satisfy the mobile machinery exemption. The Schlumberger court determined the exemption did not apply to a vehicle capable of transporting another load without substantial, structural modification, even though transportation of such load might not be economical without such modification. In addition, application of the FET mobile machinery exemption is fact-specific, so it may be difficult to find prior rulings providing sufficient guidance for your specific vehicle. This is especially likely, given IRS rulings prior to the year 2000 may no longer offer reliable guidance, because IRS began to interpret the mobile machinery exemption more narrowly around that time. Given the stringent requirements and fact-specific nature of this exemption, taxpayers are urged to be cautious in relying on it. If you think your vehicle would qualify for this tax exemption, you should first discuss it with your tax advisor.

Is the mobile machinery exemption for FET still valid?

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