Suitable for use: Periodic review advisable

From an NTEA member We have been making retail sales of 22-foot platform bodies for four years. Over this time there has been a gradual shift in our customer base and in the use for which these bodies are purchased. Four years ago, 45% of our 22-foot platform bodies were installed on vehicles of 33,000 pounds gross vehicle weight (GVW) or less; today, that number is closer to 30%. Are these bodies still considered suitable for use with vehicles 33,000 pounds GVW or less? Your question demonstrates the importance of a company periodically reviewing its tax treatment of potentially taxable articles. Treas. Reg. § 145.4051-1(a)(4) states that no federal excise tax under I.R.C. § 4051 will be imposed on a body that is “suitable for use” with a vehicle 33,000 lbs. GVW or less. The regulation defines suitable for use as a “practical and commercial fitness for such use.” In other words, if it is reasonable from an engineering and price perspective to mount a body on a vehicle 33,000 pounds GVW or less, the Internal Revenue Service (IRS) will treat all sales of that model body as nontaxable, even when the body is mounted in any particular sale on a vehicle exceeding 33,000 pounds GVW. Unfortunately, the IRS has provided little guidance for determining how often a body type must be sold with a vehicle 33,000 pounds GVW or less to be considered suitable for use with such vehicles. In the only ruling to address the issue, a private letter ruling, the IRS considered 244 sales of a particular model refuse packer over a three-year period. Thirty-eight of the 244 sales (or a little more than 15%) were installed on vehicles 33,000 pounds. GVW or less. The IRS determined that this pattern of sales was sufficient to meet the suitable for use standard. See Private Letter Ruling 8820032 (Feb. 17, 1998). However, the IRS did not adopt a 15% rule. In your case, current sales of 22-foot platforms indicate 30% usage on vehicles below the taxable threshold. Generally, we believe that 30% of a taxpayer’s sales of a body type installed on vehicles 33,000 pounds GVW or less should be sufficient to support a finding that the model body in question is nontaxable. However, it is important to stress that there is no bright-line test to determine a body’s suitability of use with vehicles 33,000 lbs. GVW or less. Accordingly, a taxpayer must always be prepared to defend its tax-free treatment of bodies based on the suitable for use standard to an inquiring tax auditor. The drop in your sales of 22-foot platform bodies with vehicles 33,000 pounds GVW or less from 45% to 30% increases the risk that a tax auditor will question your treatment of these bodies as nontaxable. In defending your position that the bodies may be sold tax-free, you should keep two things in mind. First, the total number of the bodies you sell may be just as important as the percentage of those sales that are installed on vehicles 33,000 pounds GVW or less. For example, a showing that 30% of 200 total sales were installed on vehicles 33,000 pounds GVW or less will be much more likely to persuade an auditor than a similar 30% showing based on 10 total sales. Second, industry-wide sale patterns for the same body type that you sell may be helpful. For example, in 1983, a survey conducted by the NTEA found that out of the 268 22-foot platform bodies sold by various companies, 48% of them were installed on vehicles 33,000 pounds GVW or less. Industry-wide data may demonstrate that the shift in the use of the 22-foot platform body by your customers is not representative of the general use of these bodies. Therefore, it may be worthwhile to request such sales data from manufacturers and other retailers of 22-foot platform bodies. However, if you intend to rely on industry-wide data that runs counter to your own sales, be sure that_ 1) the data is well-documented and clearly supports your position; 2) the data is for sales of bodies that are not significantly different from the bodies you sell; and 3) you can adequately explain why the body at issue is suitable for use with vehicles 33,000 pounds GVW or less, despite your sales history to the contrary. Obviously, suitable for use determinations are critical to retail sellers of truck bodies and chassis. These decisions are fact specific, and we urge NTEA members to review your determinations with your tax adviser on a periodic basis. IMPORTANT NOTE: This document reflects the FET as of 6/1/1999. 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 6/1/1999 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: Periodic review advisable

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