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IRS: Heavy-Duty Pickups May Be Tractors

Dealers should consider collecting excise taxes.

When is a pickup truck not a pickup truck? Well, according to the Internal Revenue Service, it’s when the IRS says it isn’t.

In August 2004, the IRS decided that heavy-duty pickups such as the Ford 400 and 500 series vehicles, which may be converted by the customer for other uses after the sale, might be tractors. Thus, retail excise tax may need to be collected. IRS Ruling 2004-80 was issued even though the U.S. 11th Circuit Court of Appeals ruled in January that these vehicles are indeed pickup trucks.

“Customers use these pickups as personal vehicles, a lot of times to pull a recreational vehicle,” according to one automotive expert. “They buy the trucks for safety reasons, including their braking systems. Now the IRS wants to give the buyers a tax obligation for doing so.”

So what is the rationale for the IRS decision?

In part, here is what Ruling 2004-80 says. “The vehicle tows trailers and semi-trailers; the trailers exceed 35 feet in length and have a gross vehicle weight rating of 20,000 pounds. … The cab has an electric trailer brake control that connects to the brakes of a towed trailer and to a hook up for trailer lights. The vehicle has two storage boxes behind the cab that can accommodate incidental items such as small tools and vehicle repair equipment.

“… Section 4051(a)(1) imposes an excise tax on the first retail sale of automobile truck chassis and bodies, truck trailer and semi-trailer chassis and bodies, and tractors of the kind chiefly used for highway transportation in combination with a trailer or semi-trailer. The tax is not limited to commercial vehicles. Thus, a vehicle may be subject to tax even if sold for use or used as a recreational or private tow vehicle rather than for commercial purposes.”

Many dealers nationwide do not collect excise tax on the sale of these heavy-duty pickups. Since the IRS has issued this ruling, though, dealers should consider collecting it.

Audit activities seem to have been focused on Ford trucks, but any conversion is at risk. While tax experts are advising dealers to collect the tax, dealers should rely on the 11th Circuit Court ruling if they have not collected it in the past.

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