Was a stripped-down truck chassis exempt as a manufacturing component when converted into an aircraft ground-power vehicle?

Plain-English summary

X Company manufactured specialized ground-support vehicles that supplied 400-cycle electricity to aircraft before departure and often after landing. It bought a stripped-down truck chassis from a Connecticut seller for about $15,000 and attached a ground-power unit costing about $25,000.

The company used custom support brackets, modified the electrical system, and added fenders, mud guards, bumpers, and platforms. Some vehicles also required relocating the fuel tank and adding a modified hydraulic system. The finished product sold for about $50,500, and X Company collected sales tax on that sale.

DRS ruled that the chassis purchase was exempt under the historical manufacturing-materials provision. The chassis became a component of the finished product, and the work transformed it into a different machine with a distinctive name, nature, and use: an aircraft ground-support vehicle supplying electricity to stationary aircraft.

The ruling followed Accessory Controls and Equipment Corp. v. Commissioner, where a stripped truck was only the bare skeleton of the final ground-support vehicle after numerous operations, including cutting its frame.

What this means for you

The historical exemption required more than adding equipment to an otherwise unchanged truck. DRS focused on the substantial operations that converted the chassis into a different commercial product manufactured for sale.

Common questions

Why was the chassis exempt? It became a component of a manufactured product with a different name, nature, and use.

What alterations mattered? The ruling lists the ground-power unit, custom brackets, electrical changes, added vehicle components, and sometimes fuel-tank and hydraulic changes.

Was the finished vehicle sold tax-free? No. The ruling says X Company collected sales tax on the finished product.

Citations and references

• Conn. Gen. Stat. § 12-412(18).
• Conn. Agencies Regs. § 12-426-11b.
• Accessory Controls and Equipment Corp. v. Commissioner, 4 C.S.C.R. (Part 1) 216 (Jan. 24, 1989).

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 90-34

Original ruling text

Ruling 90-34, Manufacturing

Ruling 90-34

Manufacturing

You have inquired as to whether the purchase of a truck chassis by taxpayer an exempt purchase pursuant to Connecticut General Statutes Section §12-412(18).

X Company is in the business of manufacturing and selling specialized ground support vehicles for use in the aircraft industry. The ground support vehicles are used to provide 400 cycle electricity to the aircraft prior to its departure and often landing.

X Company purchases a stripped-down truck chassis from a Connecticut vendor for approximately $15,000. X Company attaches a ground power unit, costing approximately $25,000, to the truck chassis utilizing customized support brackets, and then modifies the vehicle's electrical system and attaches fenders, mud guards, bumpers, and platforms. In some cases the fuel tank is relocated and a modified hydraulic system is added.

The product produced is sold for approximately $50,500. Taxpayer collects sales tax on the finished product.

RULING

Section 12-412(18) provides for an exemption from sales and use tax for the "sales of and the storage of or use of materials, ...which become an ingredient or component part of tangible personal property to be sold or which are used directly in ..., an industrial plant in the actual fabrication of the finished product to be sold...".

This ruling must be analyzed in the context of a recent Connecticut case, Accessory Controls and Equipment Corp. v. Commissioner , 4 C.S.C.R. (Part 1) 216 (January 24, 1989). In this case the taxpayer sought an exemption under Section 12-412(18) on the purchase of a stripped-down truck which was then transformed into a ground support vehicle for aircraft. The court analyzed the question in the context of whether a different product resulted from the process or whether the product remained basically the same with some modification. The court found that many different operations were performed on the truck chassis before the process was completed, including cutting into the frame of the vehicle. The truck chassis was only a bare skeleton of what was to be the final product.

X Company must satisfy the exemption by proving that the truck was a production material that became a component part of property to be sold. In accordance with the regulations (§12-426-11b) the material must be manufactured. Among other things manufacturing requires that there be a transformation of property into a different product having a distinctive name, nature and use.

As with the taxpayer in Accessory Controls , the taxpayer herein has created an end product which is a different product from the original chassis. The alterations to the chassis and the incorporation of a ground power unit onto the vehicle have resulted in a machine which provides electrical support to stationary aircraft. Because this process results in the creation of a different product having a distinctive name, nature and use, it is hereby ruled that the taxpayer's purchase of the truck chassis is exempt from sales and use tax pursuant to Section 12-412(18).

James F. Meehan

Commissioner

March 12, 1990