Is a speed limitation sufficient for the FET off-highway vehicle exception?

From an NTEA member If a vehicle is unable to maintain highway speeds, can it be treated as a so-called “off-highway vehicle” that is not subject to Internal Revenue Code (IRC) Section 4051 Federal Excise Tax (FET)? Not necessarily. Although a speed limitation can be a relevant factor, it often will not be sufficient. To satisfy the so-called off-highway vehicle exception, a vehicle must meet two tests: (1) the vehicle must be “specially designed for the primary function of transporting a particular type of load other than over the public highway,” and (2) “because of this special design such vehicle’s capability to transport a load over the public highway is substantially limited or impaired.” See IRC 7701(a)(48)(A). Both of these two tests must be satisfied in order for a vehicle to be treated as an off-highway vehicle for FET purposes. A speed limitation is identified in the statute as an example of a factor that can be considered in determining whether a vehicle is substantially limited or impaired for purposes of the second test. Therefore, even if a vehicle’s speed limitation is sufficient to satisfy the second test, the vehicle still will have to meet the requirements of the first test. With respect to the second test, the statutory language provides “in determining whether substantial limitation or impairment exists, account may be taken of factors such as the size of the vehicle, whether such vehicle is subject to the licensing, safety and other requirements applicable to highway vehicles, and whether such vehicle can transport a load at a sustained speed of at least 25 miles per hour” (Emphasis added). The specific reference to 25 miles per hour suggests that, if a vehicle can sustain a speed of 25 miles per hour or higher, the speed limitation might not be sufficient (at least by itself) to constitute a substantial limitation or impairment for purposes of the second test. (Note: the language in the off-highway vehicle exception regarding a speed limitation changed in 2004 when the former off-highway vehicle exception — which was a regulatory provision — was adopted by Congress as a statutory provision; the prior regulatory provision provided (as it relates to the speed limitation) that “account may be taken of whether the vehicle may travel at regular highway speeds…” and did not reference a specific speed.) A speed of 25 miles per hour may seem quite low when compared to the speed limits for roads commonly thought of as highways — e.g., freeways and interstate highways with speed limits as high as 70–75 miles per hour. However, the term “public highway,” as used for FET purposes in defining a “highway vehicle,” refers to “any road (whether a Federal highway, State highway, city street, or otherwise) in the United States which is not a private roadway.” See Treasury Regulation 145.4051-1(a)(2) incorporating the definition of “highway vehicle” from Treasury Regulation 48.4061(a)-1(d), which regulation also defines “public highway.” Therefore, this definition of “public highway” may explain (at least in part) the low speed referenced in the off-highway vehicle exception. Unfortunately, the off-highway vehicle exception is incredibly fact-specific and there are few bright-line rules or clear guidance for determining if a vehicle will satisfy the exception’s requirements. In addition, you should be aware that the IRS, in the past, has applied this exception narrowly (i.e., in a manner that makes it difficult for vehicles to satisfy the requirements of the off-highway exception). If you believe your vehicle has physical design features for transporting loads off of the public roads, and those design features substantially restrict the vehicle’s ability to transport loads on public roads, consult with your tax advisor regarding your specific facts. Find more FET articles at ntea.com/fetresources.

Is a speed limitation sufficient for the FET off-highway vehicle exception?

Recommended Articles

FET on cranes

Applying FET to spare/replacement parts and accessories

Applying FET to spare/replacement parts and accessories