Recovery equipment excluded from heavy-wrecker excise-tax price

Plain-English summary

A manufacturer asked whether specified recovery equipment installed on heavy wreckers could be excluded from the sale price subject to the 12 percent retail excise tax on heavy trucks. The IRS distinguished equipment used to recover, position, and stabilize disabled vehicles from equipment used to tow them on highways. It ruled that second- and third-stage recovery booms, two recovery winches, an optional drag winch, an optional side puller, and a second hydraulic oil tank primarily serve the nonhighway recovery function. Charges for those items may be excluded when supported by adequate records. A hydraulic control valve may also be excluded when at least as many of its spools serve recovery as serve towing, again subject to adequate records. The ruling did not exclude the outer boom, which the manufacturer agreed served both recovery and towing.

Ruling snapshot

• Question: Which equipment on heavy wrecker vehicles may be excluded from the taxable sale price because it primarily serves a nonhighway recovery function?
• Outcome: Approved for the identified recovery equipment and qualifying hydraulic control valves, subject to adequate records
• Key authorities: IRC § 4051(a); Temp. Treas. Reg. §§ 145.4051-1(a)(1) and 145.4052-1(f)(2); Treas. Reg. § 48.4061(a)-1(a)(3); Rev. Rul. 79-192; Rev. Rul. 95-40

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202323004                                              Third Party Communication: None
 Release Date: 6/9/2023                                         Date of Communication: Not Applicable
 Index Number: 4051.00-00
                                                                Person To Contact:
 --------------------                                           --------------------, ID No. -----------------
 ------------------------                                       Telephone Number:
 -------------------------------                                --------------------
                                                                Refer Reply To:
 In Re: --------------------------------------------------- CC:PSI:7
 -----                                                      PLR-117174-22
                                                                Date:
                                                                03/10/2023


LEGEND

Taxpayer          =        ------------------------------------------------------------------------------------------
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A                 =        ---------------------------
B                 =        ----------------------------
C                 =        --------------------------------------
D                 =        ------------------------
E                 =        --------------------------
side puller =              ------------------------------


Dear -----------------:

       This is in response to your authorized representative’s letter dated September 2,
2022, requesting rulings regarding the retail excise tax on heavy trucks and trailers
imposed by § 4051(a) of the Internal Revenue Code (Code).

FACTS

       Taxpayer is in the business of manufacturing the following wrecker and tow
vehicles: A, B, C, D, and E (collectively the “Subject Vehicles”). Each Subject Vehicle
has a gross vehicle weight in excess of 33,000 pounds and is subject to the § 4051(a)
tax upon its first retail sale.

        The Subject Vehicles are mainly used for two functions: (1) the recovery
function, and (2) the towing function. The recovery function principally refers to
retrieving a damaged or disabled vehicle, appropriately positioning it (such as moving
an overturned vehicle to an upright position) and/or placing it near a Subject Vehicle.
PLR-117174-22                                2

The towing function principally refers to towing a damaged or disabled vehicle away
from the accident site once the damaged or disabled vehicle has been placed or
appropriately positioned near a Subject Vehicle.

       Taxpayer requests a ruling that the following equipment installed on the Subject
Vehicles is excludable from the taxable sale price of each Subject Vehicle for purposes
of the § 4051(a) tax: (1) the second and, in some models, third recovery stage booms;
(2) two recovery winches; (3) an optional drag winch; (4) an optional side puller; (5) the
jack legs and optional horizontal stabilizers; (6) certain hydraulic control valves; and
(7) one of two hydraulic oil tanks (for applicable models) (collectively, the “Subject
Equipment”).

       1.     The Second and Third Stage Recovery Booms

       All Subject Vehicles have a recovery boom assembly comprised of an outer
boom, second stage recovery boom, and in some cases, a third stage recovery boom.
The outer boom contributes significantly to both the recovery function and the towing
function. It houses the second and third stage recovery booms, augments the reach of
these booms, and provides the lifting function of these booms. However, that lifting
function is also used to facilitate the towing function. Taxpayer does not dispute that the
outer boom is subject to the § 4051 tax.

        All the Subject Vehicles have a second stage recovery boom and some of the
Subject Vehicles also have a third stage recovery boom. The second and third stage
recovery booms are housed by and extend from the outer boom. These second and
third stage recovery boom assemblies are generally comprised of: (1) the boom;
(2) D-rings or shackles; and (3) a winch system.

      The second and third stage recovery booms can extend or retract to any
customized length from the end of the outer boom to the fully extended length of the
second and, if applicable, third stage recovery boom.

       The second and third stage recovery booms are also equipped with D-rings or
shackles that are used to facilitate the recovery function. A winch cable (see “Two
Recovery Winches” below) is typically pulled out to the damaged or disabled vehicle
through a pulley and back to the Subject Vehicle, where the hook at the end of the
winch rope is affixed to the D-ring or shackle. The D-rings or shackles on the booms
aid the recovery function by creating a two-part line. A two-part line can significantly
increase the Subject Vehicle's ability to efficiently position the damaged or disabled
vehicle by decreasing the amount of force necessary for such positioning.

       The second and third stage recovery booms are not equipped with a tow bar or
similar device and are not designed for the attachment of such device. Without a tow
bar or similar device, the towed object would not be secured in the correct position and
would shift or swing dangerously from side to side.
PLR-117174-22                                3


      2.     Two Recovery Winches

        The Subject Vehicles have two side-by-side recovery winches that are
independently operated. The cables operated by the recovery winches are 200 to 250
feet long. Each of the two winch cables can be operated at different lengths, and the
extension or retraction of the winch cables can be operated at two different speeds.
With only one recovery winch, a damaged or disabled vehicle could be pulled, dragged,
and lifted; the second recovery winch allows for the vehicle to be turned, tilted or
twisted.

      3.     Optional Drag Winch

         The drag winch is only an option on some of the Subject Vehicles. The drag
winch pulls heavy objects that are on uneven ground (such as an object in a ditch) or
that offer resistance (such as an object in mud). The drag winch does not have the
ability to lift or lower a disabled vehicle.

      4.     Optional Side Puller

       The side puller is only an option on some of the Subject Vehicles and is used to
place a damaged or disabled vehicle close to the Subject Vehicle. The side puller is a
modular device that is separate from the Subject Vehicles and is installed just behind
the operator's cab. This equipment has independent winches, legs, and controls, its
own hydraulic control valve, and generally is used in conjunction with the other winches
of the Subject Vehicle. It can only be used for side recoveries.

      5.     Jack Legs and Optional Horizontal Stabilizers

        The inner and outer jack legs and optional inner and outer horizontal stabilizers
stabilize the Subject Vehicles so that they will resist overturning. The jack legs extend
vertically, which in turn raises and lowers the rear of the Subject Vehicles. For example,
the jack legs can help to level the Subject Vehicles when they are on uneven ground to
provide increased stability and to maintain appropriate ground clearance. The optional
horizontal stabilizers are an option on some of the Subject Vehicles and extend from the
inner jack legs.

      6.     Hydraulic Control Valves

      A Subject Vehicle has two separate hydraulic control valves, each of which is
comprised of several spools. One hydraulic control valve typically has three or four
spools. The other hydraulic control valve has the remaining spools.

       Towing functions generally require four spools: (1) a boom up/down spool (which
also contributes to the recovery function), (2) an under lift tilt up/down spool, (3) an
PLR-117174-22                                4

under lift fold up/down spool, and (4) an under lift in/out spool. In some of the Subject
Vehicles, the towing operations only require three spools because a single spool is used
for both the under lift tilt up/down function and the under lift fold up/down function.

         Recovery functions generally require five spools: (1) a winch one in/out spool,
(2) a winch two in/out spool, (3) a boom in/out spool, (4) a left jack up/down spool, and
(5) a right jack up/down spool. As noted earlier, the boom up/down spool also
contributes to the recovery function; however, because the boom up/down spool is
important for both the towing and recovery functions, Taxpayer will treat that spool as
facilitating only the towing function. Nonstandard options may result in either adding
more hydraulic control valves to the system (e.g., the side puller), or adding additional
spools to an existing hydraulic control valve (e.g., the drag winch).

      Because a Subject Vehicle performs both towing and recovery functions, a
Subject Vehicle typically has nine spools.

       7.     Second Hydraulic Oil Tank

       Some of the Subject Vehicles are equipped with two hydraulic oil tanks of the
same or similar size. If those Subject Vehicles were only performing the towing
function, then only one hydraulic oil tank would be needed to efficiently support the
tubing, hoses, and hydraulic cylinders for that function. However, because those
Subject Vehicles also perform a recovery function, a second hydraulic oil tank is
necessary for efficient operations of those Subject Vehicles.

LAW

      Section 4051(a)(1) imposes a 12 percent tax on the first retail sale of truck
chassis and truck bodies.

       Section 145.4051-1(a)(1) of the Temporary Excise Tax Regulations under the
Highway Revenue Act of 1982 (Pub. L. 97-424) explains that the § 4051(a)(1) tax is
imposed on the first retail sale of automobile truck chassis and bodies (including in each
case parts or accessories therefor sold on or in connection therewith or with the sale
thereof).

       Section 145.4052-1(f)(2) provides that rules similar to § 48.4061(a)-1(a)(2) and
(3) are applicable to § 4051.

        Section 48.4061(a)-1(a)(3)(i) of the Manufacturers and Retailers Excise Tax
Regulations characterizes equipment or machinery installed on a taxable chassis or
body as an integral part of the taxable chassis or body if the machinery or equipment
contributes toward the highway transportation function of the chassis or body,
regardless of whether separate sales of the machinery or equipment would be subject
to the tax on automotive parts or accessories. Therefore, the amount of the sale price
PLR-117174-22                                5

of a taxable chassis or body that is attributable to such machinery or equipment must be
included in the tax base when computing the tax due on the sale or use of a taxable
chassis or body. Examples of the type of machinery or equipment that contribute to the
highway transportation function of a chassis or body are the following: loading and
unloading equipment; towing winches; and all other machinery or equipment
contributing to either the maintenance or safety of the vehicle, the preservation of cargo
(other than refrigeration units), or the comfort or convenience of the driver or
passengers.

        Section 48.4061(a)-1(a)(3)(ii) excludes from the taxable sale price of a chassis or
body amounts charged for machinery or equipment that is installed on a taxable chassis
or body if (A) such machinery or equipment does not contribute toward the highway
transportation function of the chassis or body, and (B) the reasonableness of the charge
for the machinery or equipment is supportable by adequate records.

       Rev. Rul. 79-192, 1979-1 C.B. 340, holds that vacuum equipment, water hoses,
and certain other components of street sweeper vehicles are items that primarily
perform the nonhighway transportation function of street cleaning and are therefore
excludable from the tax base. In reaching this conclusion, the revenue ruling reasons
that an article contributes to the highway transportation or load carrying function of a
vehicle for purposes of § 48.4061(a)-1(a)(3)(ii) only if it contributes as much or more to
the highway transportation function than to the nonhighway transportation function. The
revenue ruling further notes that an item that contributes primarily to the nonhighway
transportation function of the vehicle is not taxable.

       Rev. Rul. 95-40, 1995-1 C.B. 195, considers whether a hose (used to retrieve
and load debris) and a vacuum pump mounted on an industrial vacuum loader truck
contribute to the highway transportation function of the truck. The revenue ruling
concludes that the hose and pump do not contribute to the highway transportation
function of the truck because they primarily perform a debris removal function.
Consequently, for purposes of the § 4051 tax, the hose and pump are excludable from
the tax base.

ANALYSIS & CONCLUSION

       In the present case, the exclusion in § 48.4061(a)-1(a)(3)(ii) applies to Subject
Equipment if Subject Equipment contributes as much or more to the nonhighway
transportation function than to the highway transportation function of the Subject
Vehicles. In other words, Subject Equipment is not taxable under § 4051(a) if it
contributes primarily to the nonhighway transportation function of the Subject Vehicles.
See Rev. Rul. 79-192 and Rev. Rul. 95-40. To this end, the word “primarily” means
principally or of first importance. See Malat v. Riddle, 383 U.S. 569 (1966). The word
“primarily” does not mean exclusive. See Rev. Rul. 77-36, 1977-1 C.B. 347.
PLR-117174-22                                6

       The second and third stage recovery booms’ primary purposes are to retrieve
and/or position damaged vehicles and other heavy equipment as part of the recovery
function. The second and third stage recovery booms do not contribute to the highway
transportation function of a Subject Vehicle because they facilitate the recovery function
rather than the towing function of a Subject vehicle.

        The two recovery winches, the optional drag winch, and the optional side puller
do not contribute to the highway transportation function of a Subject Vehicle because
their functions are limited to retrieval, positioning and/or placement of heavy objects,
including pulling heavy objects from uneven ground onto level ground or pulling objects
out of ditches, embankments, mud, or the like, which are recovery functions.

        The jack legs and optional horizontal stabilizers do not contribute to the highway
transportation function of a Subject Vehicle because they only provide the additional
stability needed to resist overturning while engaging in the recovery function.

        Each hydraulic control valve is considered separately for purposes of the
exclusion in § 48.4061(a)-1(a)(3)(ii). A hydraulic control valve contains multiple spools.
The spools generally required for towing operations (the boom up/down spool, the
under lift tilt up/down spool, the under lift fold up/down spool, and the under lift in/out
spool) contribute to the highway transportation function of a Subject Vehicle. The
spools generally required for recovery operations (the winch one in/out spool, the winch
two in/out spool, the boom in/out spool, the left jack up/down spool, and the right jack
up/down spool) do not contribute to the highway transportation function of a Subject
Vehicle. To the extent the number of spools on a hydraulic control valve that contribute
to the recovery function of a Subject Vehicle is greater than or equal to the number of
spools on the hydraulic control valve that contribute to the towing function, the hydraulic
control valve contributes as much or more to the nonhighway transportation function of
a Subject Vehicle than to the highway transportation function of a Subject Vehicle.

       The second hydraulic oil tank contributes primarily to the nonhighway
transportation function of a Subject Vehicle. Because the highway transportation
function of a Subject Vehicle can be facilitated wholly by one hydraulic oil tank, the
addition of a second hydraulic oil tank is only necessary to facilitate the nonhighway
transportation function. Because of this, the second hydraulic oil tank contributes
primarily to the nonhighway transportation function of a Subject Vehicle.

       Based on the foregoing, we conclude that the second and third stage recovery
booms, the two recovery winches, the optional drag winch, the optional side puller, and
the second hydraulic oil tank contribute primarily to the nonhighway transportation
function of the Subject Vehicles. Any contribution to the highway transportation function
of the Subject Vehicles is incidental. Accordingly, for purposes of the tax imposed by
§ 4051(a), Taxpayer may exclude from the taxable sale price of a Subject Vehicle
amounts charged for the second and third stage recovery booms, the two recovery
winches, the optional drag winch, the optional side puller, and the second hydraulic oil
PLR-117174-22                                           7

tank installed on the Subject Vehicle if the reasonableness of the charge for such
equipment is supportable by adequate records.

       Further, to the extent the spools on a hydraulic control valve installed on a
Subject Vehicle contribute as much or more to the nonhighway transportation function
of the Subject Vehicle as the highway transportation function of the Subject Vehicle,
Taxpayer may exclude from the taxable sale price of the Subject Vehicle amounts
charged for the hydraulic control valve if the reasonableness of the charge for such
equipment is supportable by adequate records.

      The rulings contained in this letter are based upon information and
representations submitted by the Taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the
material submitted in support of this ruling request, it is subject to verification on
examination.

       Except as specifically ruled herein, we express or imply no opinion on the federal
tax consequences of the transaction under the cited provisions or under any other
provision of the Code.

      This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

         In accordance with the power of attorney on file with this office, a copy of this
letter is being sent to your authorized representative.

                                                               Sincerely,

                                                               /s/

                                                               Stephanie Bland
                                                               Branch Chief, Branch 7
                                                               Office of Associate Chief Counsel
                                                               (Passthroughs & Special Industries)

Enclosures (2)
      Copy of this letter
      Copy for § 6110 purposes




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