IRS punts on excise tax

March 6, 2003

After hearing testimony from 29 people and organizations on Feb.

After hearing testimony from 29 people and organizations on Feb. 27 opposing its proposed rulemaking, the Internal Revenue Service (IRS) decided to let Congress consider the issue, possibly in connection with the highway reauthorization bill later this year.

Joel Dandrea, executive vice president of the Specialized Carriers & Rigging Association (SC&RA), estimated that the mobile cranes in his organization spend only 10% of their operating time on the highway.

"SC&RA believes the IRS is mistaken in its assessment that mobile machinery vehicles are functionally the same as taxable highway vehicles," he said in his testimony.

Under the current law, vehicles that use the highway system are required to pay excise taxes to the federal government to improve and maintain the system. Vehicles that are designed exclusively for off-road use and "mobile machinery" that uses highways at minimal levels, however, have been exempt from paying these taxes.

The IRS is proposing to eliminate the exemption and let the excise tax apply to mobile machinery because, it said, the machinery could be used on the highways. The proposal includes taxes on new vehicle purchases, motor fuels and heavy-duty tires plus an annual tax by vehicle weight.

The IRS now plans to wait for legislative guidance on the excise issue before deciding on a rule change.

The American Road & Transportation Builders Association (ARTBA) estimated that the excise tax could cost the U.S. transportation construction industry $400 million annually. ARTBA also questioned why the Office of Management & Budget had not reviewed the IRS proposal and conducted an analysis to determine the affect on the business community.