Suitable for use - Determinations for dump bodies

From an NTEA member We sell dump truck bodies at retail. Is it true that the Internal Revenue Service (IRS) recently issued new guidelines governing the taxability of these bodies? Yes, but only for dump bodies with specific characteristics. Under IRC Section 4051(a)(2), a body model is not taxable if it is “suitable for use” with vehicles rated 33,000 pounds gross vehicle weight (GVW) or less. However, the statute, Treasury Regulations and IRS rulings historically have provided taxpayers little guidance for making a “suitable for use” determination. Therefore, the NTEA worked with the IRS under its Industry Issue Resolution (IIR) Program to create objective guidelines for taxpayers faced with a “suitable for use” determination. As a result of this collaborative effort, the IRS recently issued Rev. Proc. 2005-19 that establishes four “safe harbors” for certain types of bodies. If you conduct a retail sale of a body for which Rev. Proc. 2005-19 establishes a safe harbor, the IRS “will not challenge [your] determination that [such body] meet[s] the ‘suitable for use’ standard and sales thereof are excluded from” Section 4051 tax. This Revenue Procedure became effective April 4, 2005, but the IRS states that “[i]n the case of sales before April 4, 2005, the Service will not challenge sellers who take positions consistent with this revenue procedure with respect to sales of truck bodies described” in the safe harbors. One such safe harbor identified in this Revenue Procedure is for dump truck bodies that have “load capacities of 8 cubic yards or less.” Therefore, retail sales of dump bodies that satisfy the safe harbor load capacity requirement will be treated as nontaxable because the IRS has determined that such bodies — as a class — are suitable for use with vehicles rated 33,000 lbs. or less. In addition to dump bodies, Rev. Proc. 2005-19 establishes safe harbors for_ (a) “Dry freight and refrigerated truck van bodies 24 feet or less in length,” (b) “Refuse packer truck bodies with load capacities of 20 cubic yards or less,” and (c) “Platform truck bodies 21 feet or less in length.” Note, a body may still be nontaxable, based on a suitable for use determination, even if it is not identified in Rev. Proc. 2005-19 as a safe harbor. For example, the NTEA believes platform bodies up to 24 feet should be nontaxable under the suitable for use standard and, in the future, will seek to expand the safe harbors to include longer platform bodies. The absence of a safe harbor for a particular body category — such as a tank body or a body that does not meet the specific characteristics for its category — means the “old rules” continue to apply. Taxpayers must be prepared to defend their position that a body model is “suitable for use” with a vehicle 33,000 pounds GVW or less. The best way to accomplish this is to use your own sales data (although you may also refer to sales data from manufacturers or other retailers of substantially similar bodies) to demonstrate that, in a significant percentage of sales, the body model at issue was installed on vehicles rated 33,000 pounds GVW or less. However, you should note that the absolute number of sales in which a body model was installed on vehicles at or below 33,000 pounds is just as important as the percentage number. For example, sales data showing that a body model was installed on vehicles at or below 33,000 pounds in 15% of 300 sales is more likely to persuade an auditor than sales data showing that a body model was installed on a chassis in 15% of 30 sales. IMPORTANT NOTE: This document reflects the FET as of 6/2/2005. Transactions prior to this time may be subject to different rules because of changes in the FET Regulations, Statutory Amendments and IRS Rulings issued subsequent to the time of such earlier transactions. Similarly, transactions entered into after 6/2/2005 may be subject to different rules. It is, therefore, essential that users of the outline consult with their tax advisers before relying upon it. Also, users should recognize that IRS Letter Rulings referred to in these materials are binding only on the taxpayers to whom they were issued and only serve as an indication of the IRS's position on any issue.

Suitable for use - Determinations for dump bodies

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