WSR 97-07-079
PROPOSED RULES
DEPARTMENT OF REVENUE
[Filed March 19, 1997, 11:50 a.m.]
Original Notice.
Preproposal statement of inquiry was filed as WSR 95-24-051.
Title of Rule: WAC 458-20-174 Sales of motor vehicles, trailers, and parts to motor carriers operating in interstate or foreign commerce; and 458-20-17401 Use tax liability for motor vehicles, trailers, and parts used by motor carriers operating in interstate or foreign commerce.
Purpose: WAC 458-20-174 explains the retail sales tax exemptions provided for sales of motor vehicles, trailers, and parts to motor carriers operating in interstate or foreign commerce. WAC 458-20-17401 explains the use tax exemptions provided for the use of motor vehicles, trailers, and parts by motor carriers operating in interstate or foreign commerce.
Statutory Authority for Adoption: RCW 82.32.300.
Statute Being Implemented: For WAC 458-20-174 is RCW 82.08.0262 and 82.08.0263; and for WAC 458-20-17401 is RCW 82.12.0254.
Summary: These rules are being revised to implement HB 1157 (chapter 63, Laws of 1995), which removed the requirement that motor carriers obtain trip permits for the first use of vehicles as a condition for the retail sales tax exemptions. This change is reflected in the revision of WAC 458-20-174. Chapter 63, Laws of 1995, also removed the use tax exemption requirement that the first use of a motor vehicle be in interstate or foreign commerce. This is reflected in the revision of WAC 458-20-17401. The retail sales and use tax exemptions require that the purchaser/user be, or operate under contract with, a holder of a permit issued by the Interstate Commerce Commission (ICC). However, the ICC has been eliminated. The revisions to these rules explain that the Department of Revenue will construe the exemptions as if they read "Interstate Commerce Commission or successor agency."
Reasons Supporting Proposal: To incorporate 1995 law changes and to recognize the elimination of the Interstate Commerce Commission.
Name of Agency Personnel Responsible for Drafting: Alan R. Lynn, 711 Capitol Way South, Suite #303, Olympia, WA, (360) 586-9040; Implementation: Claire Hesselholt, 711 Capitol Way South, Suite #303, Olympia, WA, (360) 753-3446; and Enforcement: Russell Brubaker, 711 Capitol Way South, Suite #303, Olympia, WA, (360) 586-0257.
Name of Proponent: Department of Revenue, governmental.
Rule is necessary because of federal law, Public Law 104-88, elimination of ICC.
Explanation of Rule, its Purpose, and Anticipated Effects: WAC 458-20-174 explains the retail sales tax exemptions for sales of motor vehicles, trailers, parts, and repair services to for-hire motor carriers operating in interstate or foreign commerce. It explains the requirements which must be met and the documents which must be preserved to substantiate a claim for a retail sales tax exemption. This rule provides sample exemption certificates for the sales tax exemption provided by RCW 82.08.0262 for motor vehicles and trailers, and the sales tax exemption provided by RCW 82.08.0263 for repairs and sales of component parts. The amendments to this rule will inform businesses of the statutory changes (chapter 63, Laws of 1995) that simplify and ease the conditions under which an exempt sale/purchase can be made.
WAC 458-20-17401 explains the use tax exemptions provided for the use of motor vehicles, trailers, and component parts by for-hire motor carriers operating in interstate or foreign commerce. It explains that a motor carrier must continue to "substantially use" motor vehicles and trailers in interstate or foreign commerce to retain the use tax exemption. This rule explains the line-crossing, mileage, and revenue methods for determining whether the twenty-five percent "substantial use" exemption threshold is maintained. It also explains what types of parts qualify for exemption as "component parts." The amendments to this rule will inform motor carriers that the use tax exemption statute no longer requires that the first use of a motor vehicle or trailer be in interstate or foreign commerce.
The retail sales and use tax exemptions require that the purchaser/user be, or operate under contract with, a holder of a permit issued by the Interstate Commerce Commission (ICC). However, Public Law 104-88 eliminated the ICC effective December 31, 1995, and the federal Department of Transportation has taken over many of the commission's duties. The amendments to WAC 458-20-174 and 458-20-17401 explain that the Department of Revenue will construe the retail sales and use tax exemptions as if they read "Interstate Commerce Commission or successor agency."
Proposal Changes the Following Existing Rules: This proposal amends WAC 458-20-174 and 458-20-17401. The 1995 legislature eased the restrictions under which a motor carrier can qualify for the retail sales and use tax exemptions available for motor vehicles, trailers, component parts, and repair services. These amendments bring these rules in conformance with existing law.
No small business economic impact statement has been prepared under chapter 19.85 RCW. The amendments to these rules bring the existing rule into conformance with existing law, and make taxable and nontaxable circumstances more clear. These amendments do not impose any new or additional administrative burdens or responsibilities on businesses that are not imposed by law.
Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. This is an interpretive rule to implement specific statutes.
Hearing Location: Evergreen Plaza Building, 2nd Floor Conference Room, 711 Capitol Way South, Olympia, WA, on April 23, 1997, at 10:30 a.m.
Assistance for Persons with Disabilities: Contact Janet Schilter by April 14, 1997, TDD 1-800-451-7985, or (360) 753-3217.
Submit Written Comments to: Alan R. Lynn, Department of Revenue, P.O. Box 47467, Olympia, WA 98504-7467, FAX (360) 664-0693, by April 23, 1997.
Date of Intended Adoption: April 30, 1997.
March 19, 1997
Russell W. Brubaker
Assistant Director
AMENDATORY SECTION (Amending WSR 94-18-003, filed 8/24/94, effective
9/24/94)
WAC 458-20-174 Sales of motor vehicles, trailers, and parts to
motor carriers operating in interstate or foreign commerce ((of motor
vehicles, trailers, parts, etc)). (1) Introduction. This section
explains the retail sales tax exemptions provided by RCW 82.08.0262 and
82.08.0263 for sales to for hire motor carriers operating in interstate
or foreign commerce. Addressed are the requirements which must be met
and the documents which must be preserved to substantiate a claim of
retail sales tax exemption. Motor carriers should refer to WAC 458-20-17401 for a discussion of the use tax and use tax exemptions available
to motor carriers for the purchase or use of vehicles and parts under RCW
82.12.0254.
(2) Business and occupation tax. Business and occupation (B&O) tax is due on all sales to motor carriers when delivery is made in Washington, notwithstanding that the retail sales tax may not apply because of the specific statutory exemptions provided by RCW 82.08.0262 and 82.08.0263.
(a) Retailing of interstate transportation equipment. This B&O tax classification, with respect to sales to motor carriers, applies to retail sales which are exempt from retail sales tax because of the provisions of RCW 82.08.0262 or 82.08.0263. (See RCW 82.04.250.) The retailing of interstate transportation B&O tax applies to the following, but only when the retail sales tax exemption requirements for RCW 82.08.0262 or 82.08.0263 are met:
(i) Sales of motor vehicles, trailers, and component parts thereof;
(ii) The lease of motor vehicles and trailers without operator; and
(iii) Charges for labor and services rendered in respect to
constructing, cleaning, repairing, altering or improving vehicles and
trailers or component parts thereof. The term "component parts" means
any tangible personal property which is attached to and becomes an
integral part of the motor vehicle or trailer. It includes such items
as motors, motor and body parts, batteries, paint, permanently affixed
decals, and tires. "Component parts" includes the axle and wheels,
referred to as "converter gear" or "dollies," which is used to connect
a trailer behind a tractor and trailer. "Component parts" can include
tangible personal property which is attached to the vehicle and used as
an integral part of the motor carrier's operation of the vehicle, even
if the item is not required mechanically for the operation of the
vehicle. It ((would)) includes cellular telephones, communication
equipment, fire extinguishers, and other such items, whether themselves
permanently attached to the vehicle or held by brackets which are
permanently attached. If held by brackets, the brackets must be
permanently attached to the vehicle in a definite and secure manner with
these items attached to the bracket when not in use and intended to
remain with that vehicle. It does not include antifreeze, oil, grease,
and other lubricants which are considered as consumed at the time they
are placed into the vehicle, even though required for operation of the
vehicle. It does include items such as spark plugs, oil filters, air
filters, hoses and belts.
(b) Retailing. The retailing B&O tax applies to the following:
(i) Sales and services as described in (a)(i) through (iii) of this subsection, which do not meet the exemption requirements provided in RCW 82.08.0262 or 82.08.0263;
(ii) Sales of equipment, tools, parts and accessories which do not become a component part of a motor vehicle or trailer used in transporting persons or property therein;
(iii) Sales of consumable supplies, such as oil, antifreeze, grease, other lubricants, cleaning solvents and ice; and
(iv) Towing charges.
(c) Interstate sales deduction for lease income. Persons who lease motor vehicles and trailers to motor carriers at retail (without operator) may claim an interstate sales deduction for the amount of the lease income attributable to the actual out-of-state use of the vehicles and trailers. Documentation substantiating such a claim must be retained by the lessor. This deduction may be taken even if the vehicle is not used substantially in interstate hauls for hire. The B&O tax applies to that portion of use of the vehicle while the vehicle is being used in Washington, even if the usage is in connection with interstate hauls and the vehicle is used substantially in hauling for hire in interstate commerce. See also WAC 458-20-193.
(3) Retail sales tax. RCW 82.08.0262 and 82.08.0263 provide
((exemption from the)) retail sales tax exemptions for certain sales to
motor carriers when delivery is made in Washington.
(a) Sales of motor vehicles and trailers. RCW 82.08.0263 provides
an exemption from the retail sales tax for sales of motor vehicles and
trailers to be used for transporting therein persons or property for hire
in interstate or foreign commerce. This exemption is available whether
such use is by a for hire motor carrier, or by persons operating the
vehicles and trailers under contract with a for hire motor carrier.
((The following requirements must be met to perfect any claim for
exemption:
(i))) The for hire carrier must hold a carrier permit issued by the
Interstate Commerce Commission((; and
(ii) The vehicle will move upon the highways of this state from the
point of delivery in this state to a point outside the state under the
authority of a trip permit, also known as a one-transit permit, issued
under the provisions of RCW 46.16.160.
In some cases the vehicle may require servicing or alterations to
prepare it for use as carrier property. This may include such things as
installing signs, adding accessories, changing tires, custom painting,
etc. Movement of the vehicle to a Washington site where the servicing
or alterations will take place will not result in a loss of the exemption
when all conditions for exemption are met. Nor shall the exemption be
lost simply because the motor carrier first moves the vehicle to a
Washington site for the purposes of obtaining a payload which is
immediately hauled to an out-of-state destination by the same vehicle.
(iii))) or its successor agency to qualify for this exemption. The
seller, at the time of the sale, must retain as a part of its records ((a
copy of the trip permit, or other satisfactory evidence that a trip
permit was obtained, and)) an exemption certificate((, both of)) which
must be completed in ((their)) its entirety. The exemption certificate
must be in substantially the following form:
Exemption Certificate
The undersigned hereby certifies that it is, or has contracted to
operate for, the holder of carrier permit No. . . . ., issued by the
Interstate Commerce Commission((;)) or its successor agency, and that the
vehicle this date purchased from you being a (specify truck or trailer
and make) , Motor No. . . . . . ., Serial No. . . . . . .((, will move
on the highways of this state from (point of origin in state) to
(out-of-state destination) or to (location) for servicing or
alteration in preparation for use as carrier property, under the
authority of a trip permit dated . . . . . ., issued under the provisions
of RCW 46.16.160; and that the sale of this vehicle)) is entitled to
exemption from the Retail Sales Tax under the provisions of RCW
82.08.0263. This certificate is given with full knowledge of, and
subject to, the legally prescribed penalties for fraud and tax evasion.
Dated . . . . . . . .
(name of carrier-purchaser)
By
(title)
(address)
((Certificate of Dealer
I hereby certify that upon the delivery of the above described
vehicle to said purchaser there was affixed thereto trip permit No.
. . . ., and that the same authorized the transit of this vehicle between
the points of origin and destination as hereinabove set forth.
(name of dealer)
(title)
(iv))) The lease of motor vehicles and trailers to motor carriers,
without operator, must satisfy all conditions and requirements provided
by RCW 82.08.0263 to qualify for the retail sales tax exemption. Failure
to meet these requirements will require the lessor to collect the retail
sales tax on the lease. However, where the exemption from retail sales
tax has not been met, a retail sales tax exemption may continue to apply
to that portion of the lease while the vehicle is being used outside
Washington, provided the lessor can substantiate the usage outside
Washington. (See WAC 458-20-193.)
(b) Sales of component parts of motor vehicles and trailers and
charges for repairs, etc. RCW 82.08.0262 provides an exemption from the
retail sales tax for sales of component parts and repairs of motor
vehicles and trailers. This exemption is available only if the user of
the motor vehicle or trailer is the holder of a carrier permit issued by
the Interstate Commerce Commission or its successor agency which
authorizes transportation by motor vehicle across the boundaries of
Washington. Since ((the Interstate Commerce Commission requires))
carriers are required to obtain these permits only when the carrier is
hauling for hire, the exemption applies only to parts and repairs
purchased for vehicles which are used in hauling for hire. The exemption
includes labor and services rendered in constructing, repairing,
cleaning, altering, or improving such motor vehicles and trailers.
(i) This exemption is available whether the motor vehicles or trailers are owned by, or operated under contract with, persons holding the carrier permit. This exemption applies even if the motor vehicle or trailer to which the parts are attached will not be used substantially in interstate hauls, provided the vehicles are used in hauling for hire.
(ii) The seller must retain as a part of its records a completed exemption certificate. This certificate may be:
(A) Issued for each purchase;
(B) Incorporated in or stamped upon the purchase order; or
(C) In blanket form certifying all future purchases as being exempt from sales tax. Blanket forms must be renewed every four years.
(iii) This certificate ((should)) must be in substantially the
following form:
Exemption Certificate
The undersigned hereby certifies that it is, or has contracted to
operate for, the holder of a carrier permit, No.. . . . . ., issued by
the Interstate Commerce Commission or its successor agency authorizing
transportation by motor vehicle across the boundaries of this state. The
undersigned further certifies that the motor truck or trailer to be
constructed, repaired, cleaned, altered, or improved by you, or to which
the subject matter of this purchase is to become a component part, will
be used in direct connection with the business of transporting therein
persons or property for hire; and that such sale and/or charges are
exempt from the Retail Sales Tax under the provisions of RCW 82.08.0262.
This certificate is given with full knowledge of, and subject to, the
legally prescribed penalties for fraud and tax evasion.
Dated . . . . . . . .
(name of carrier-purchaser)
(address)
By
(title)
(c) Taxable sales. The following sales do not qualify for exemption under the provisions of RCW 82.08.0262 or 82.08.0263, and are subject to the retail sales tax when delivery is made in Washington.
(i) Sales of equipment, tools, parts and accessories which do not become a component part of a motor vehicle or trailer used in transporting persons or property for hire. This includes items such as tire chains and tarps which are not custom made for a specific vehicle.
(ii) Sales of consumable supplies, such as oil, antifreeze, grease, other lubricants, cleaning solvents and ice.
(iii) Towing charges.
[Statutory Authority: RCW 82.32.300. 94-18-003, 458-20-174, filed
8/24/94, effective 9/24/94; 83-07-033 (Order ET 83-16), 458-20-174,
filed 3/15/83; Order ET 71-1, 458-20-174, filed 7/22/71; Order 70-3,
458-20-174 (Rule 174), filed 5/29/70, effective 7/1/70.]
AMENDATORY SECTION (Amending WSR 94-18-004, filed 8/24/94, effective
9/24/94)
WAC 458-20-17401 Use tax ((of)) liability for motor vehicles,
trailers, and parts used by motor carriers operating in interstate or
foreign commerce ((for motor vehicles, trailers, parts, etc)). (1)
Introduction. This section explains the use tax and the use tax
exemptions provided by RCW 82.12.0254 which apply to for hire motor
carriers operating in interstate or foreign commerce. For hire motor
carriers should refer to WAC 458-20-174 for a discussion of the retail
sales tax and retail sales tax exemptions which apply to motor carriers
for the purchase of vehicles and parts under RCW 82.08.0262 and
82.08.0263.
(2) Use tax. The use tax ((supplements)) complements the retail
sales tax by imposing a tax of like amount upon the use within this state
as a consumer of any tangible personal property purchased at retail,
where the user has not paid retail sales tax with respect to the purchase
of the property used. (See also WAC 458-20-178.) If the seller fails
to collect the appropriate retail sales tax, the purchaser is required
to pay the ((deferred)) retail sales or use tax directly to the
department unless the purchase and/or use is exempt from the retail sales
and/or use tax.
(3) Motor vehicles and trailers. Purchasers of motor vehicles and trailers should note the differences in the conditions and requirements for the retail sales and use tax exemptions provided by RCW 82.08.0263 and 82.12.0254, respectively. The purchaser of a motor vehicle or trailer may qualify for the retail sales tax exemption at the time of purchase, yet incur a use tax liability for the subsequent use of the same vehicle or trailer.
(a) For vehicles purchased in Washington, RCW 82.12.0254 provides
a use tax exemption for the use of any motor vehicle or trailer while
being operated under the authority of a trip permit and moving from the
point of delivery in this state to a point outside this state.
((However, any subsequent use in Washington of the vehicle by a
Washington based carrier could be subject to use tax unless the first use
was in actual transportation for hire across the state boundaries.
Carriers who purchase a vehicle outside of Washington are not required
to obtain a trip permit on the first trip into Washington as a condition
for use tax exemption, but the first use must be in an interstate haul
for hire.))
(b) RCW 82.12.0254 also provides a use tax exemption for the use of
any motor vehicle or trailer owned by, or operated under contract with,
a for hire motor carrier engaged in the business of transporting persons
or property in interstate or foreign commerce((. All)) if both of the
following conditions ((must be)) are met ((for the exemption to apply)):
(i) The user is, or operates under contract with, a holder of ((an
ICC)) a carrier permit issued by the Interstate Commerce Commission (ICC)
or its successor agency; and
(ii) The vehicle is used in substantial part in the normal and
ordinary course of the user's business for transporting therein persons
or property for hire across the boundaries of the state((; and
(iii) The first use in Washington is actual use in conducting
interstate or foreign commerce. Notwithstanding this requirement, the
use tax exemption will not be lost simply because a motor carrier holding
an ICC permit moves the vehicle to a Washington site for servicing or
modification in preparation for use as a carrier vehicle. Nor shall the
exemption be lost simply because the motor carrier first moves the
vehicle to a Washington site for the purposes of obtaining a payload
which is immediately hauled to an out-of-state destination by the same
vehicle)).
(((iv))) "In substantial part" means that the motor vehicle or
trailer for which exemption is claimed actually crosses Washington
boundaries and is used a minimum of twenty-five percent in interstate
hauling for hire.
(c) ((The following examples show how the exemption from use tax on
motor vehicles and trailers would apply to specific situations. These
examples should be used only as a general guide. The tax status of other
situations must be determined after a review of all of the facts and
circumstances.
(i) ABC Trucking, a carrier with ICC authority, purchased a used
truck from XYZ Truck Sales. The required exemption certificate was
completed and a trip permit was obtained. ABC Trucking moved the vehicle
from the seller's lot in Washington to its maintenance shop located at
its terminal in Seattle where ICC identification numbers were painted on
the doors and new tires were installed by the purchaser's employees. Ten
days later the truck was placed in service with the first haul being a
laden haul destined for an out-of-state location with movement under the
authority of a second trip permit.
This purchase and first use is exempt of retail sales and use tax.
Since the first movement of the truck to the purchaser's maintenance shop
was solely for the purpose of preparing the truck for use, the exemption
was not lost. All other requirements for exemption were met. A
reasonable interruption in the direct out-of-state movement of the
vehicle will be allowed to permit such activities as the painting of belt
lines and bumpers, the installation of signs, the inspection of the
vehicle, the installation of tires, and installation of accessory items.
The purchase of the vehicle was exempt from retail sales tax by meeting
the trip permit requirements. However, any subsequent use of the vehicle
in Washington would have been subject to use tax if the vehicle's first
use in Washington had not been in hauling for hire in interstate or
foreign commerce. Since that requirement was met, the use of this
vehicle will continue to be exempt of use tax as long as it continues to
be used substantially in interstate hauls for hire.
(ii) HB Company is a for hire carrier which maintains tractor/trailer fleets at terminals located in Montana and Washington. HB
Company holds a carrier permit issued by the Interstate Commerce
Commission. HB reassigned a truck to its Washington terminal which
previously had been used at HB's Montana terminal. This truck had been
used exclusively in Montana and previously had never been brought into
Washington. The truck is brought into Washington unladen, but
immediately picks up a load for delivery outside Washington.
The movement of the truck into Washington is treated as being part
of the subsequent haul outside Washington and the requirement that the
first use be in a laden interstate haul has been met. Use tax would have
been due on the truck if the first use was in transporting goods from a
Washington location to a Washington location.
(d))) The motor carrier must continue to substantially use the motor
vehicle or trailer in interstate for hire hauls ((for hire)) during each
calendar year to retain the exemption from use tax. This requires that
at the start of each calendar year the carrier review the usage of each
vehicle and trailer for a "view period" consisting of the previous
calendar year. If a particular vehicle was purchased or sold during the
year so that the vehicle was not available for use during the entire
calendar year, the taxpayer at its option may elect to review the usage
during the portion of the year during which the vehicle was owned or may
use a twelve-month period beginning with the date of purchase of a
vehicle or ending with the date of sale of a vehicle. For example, if
a vehicle is traded-in on May 30, ((1994)) 1996, the taxpayer must meet
the substantial use test for this vehicle for either the period January
through May ((1994)) 1996 or for the period June 1, ((1993)) 1995,
through May 30, ((1994)) 1996. Use tax is due for those vehicles which
have not been used substantially in interstate commerce and on which
retail sales or use tax has not been paid.
(((e))) (d) Carriers who maintain their records on a fiscal year
basis may, at their option, elect to review the usage of their vehicles
using their fiscal year rather than the calendar year. If a fiscal year
is used, it must be used for the entire fleet of vehicles. These
carriers may not change to a calendar year basis without first obtaining
prior approval from the department.
(((f))) (e) Usage will be reviewed on a calendar or fiscal year
basis and not on a "moving" twelve-month period. For example, a tractor
purchased on August 1, ((1992)) 1996, will need to have met the
substantial use test for the period August ((1, 1992,)) through December
((31, 1992)) 1996, or for the period August 1, ((1992)) 1996, through
July 31, ((1993)) 1997, ((())the period selected being at the taxpayer's
option(())), and for the calendar year ((1993)) 1997 and each calendar
year thereafter in order to retain the use tax exemption.
(((g))) (f) The motor carrier may select one of the methods from
those listed below to determine if its motor vehicles and trailers
satisfy the substantial use threshold for exemption under RCW 82.12.0254.
The particular method must be applied to all trucks, tractors, and
trailers within the fleet. Regardless of the method selected, a vehicle
will not be considered as used in interstate hauls unless the vehicle
actually crosses the boundaries of the state and is used in part outside
Washington. The motor carrier may change the method with the prior
written consent of the department of revenue. The methods are:
(i) Line crossing. The line crossing method compares the number of interstate for hire hauls made by a particular motor vehicle or trailer to the total number of for hire hauls. The motor vehicle or trailer must actually cross the boundaries of this state or be used for hauls which begin and end outside this state, for the haul to be considered an interstate haul.
(ii) Mileage. The mileage method compares the interstate mileage associated with the for hire hauls made by a particular motor vehicle or trailer, to the total mileage associated with its for hire hauls. All mileage associated with a specific haul which requires the motor vehicle or trailer to actually cross the boundaries of this state, or haul exclusively outside this state, is considered to be interstate mileage. Where a vehicle is returning empty after having delivered an interstate load or is empty on its way to pickup an interstate load, the empty mileage will be considered to be part of the mileage from an interstate haul.
(iii) Revenue. The revenue method compares the interstate for hire revenue generated by the particular motor vehicle or trailer to the total for hire revenue generated. The revenue generated by the motor vehicle or trailer actually crossing the boundaries of this state, or hauling exclusively outside this state, is considered to be interstate revenue for the purposes of determining use tax liability. If the motor carrier uses more than one motor vehicle or trailer to transport the cargo, the revenue generated from hauling this cargo must be allocated between the motor vehicles and/or trailers used. For the purposes of determining use tax liability, a vehicle will not be considered as having interstate revenue even if the haul originates or ends outside Washington unless the vehicle actually crosses the boundaries of the state.
(iv) Other. Any other method may be used when approved in advance and in writing by the department of revenue.
(((h))) (g) The following examples show how the methods of
determining substantial interstate use would be applied to various
situations. These examples should be used only as a general guide. The
tax status of each situation must be determined after a review of all of
the facts and circumstances.
(i) ARC Trucking picks up a load of cargo in Spokane, Washington and delivers it to the dock in Seattle, Washington, for subsequent shipment to Japan. While ARC may claim an interstate and foreign sales deduction on its excise tax return for the income attributable to this haul if all of the requirements of RCW 82.16.050(8) are met, the haul itself is considered to be intrastate for the purposes of determining whether the tractor/trailer rig meets the substantial use threshold discussed in RCW 82.12.0254. Both the pickup and delivery points are within the state of Washington.
(ii) DMG Express picks up a load of cargo in Yakima, Washington for ultimate delivery in Billings, Montana. The cargo is initially hauled from the Yakima location to DMG's hub terminal in Spokane, Washington by truck A. It is unloaded from truck A at the hub terminal, reloaded on truck B, and delivered to Billings. For the purposes of determining qualification for the use tax exemption provided by RCW 82.12.0254, two hauls have taken place. The haul performed by truck A is considered to be an intrastate haul since truck A did not cross the borders of Washington, while the haul performed by truck B is considered interstate for purposes of determining continued exemption from use tax on the trucks, even though the entire hauling income may be deductible from the motor transportation tax.
(iii) AA Express operates one tractor/trailer rig, which has
previously met the retail sales and use tax exemption requirements. AA
verifies compliance with the twenty-five percent substantial use
threshold on a calendar year basis, using the line crossing method. AA
makes one hundred for hire hauls within the calendar year ((of 1992)).
Of these hauls, seventy-one are entirely in Washington, ten are performed
entirely outside Washington, and nineteen require AA to cross the borders
of Washington. AA Express has not incurred a use tax liability on the
tractor/trailer rig as twenty-nine percent of the for hire hauls were
interstate in nature.
(iv) BDC Hauling operates one tractor/trailer rig which has
previously met the retail sales and use tax exemption requirements. BDC
verifies compliance with the twenty-five percent substantial use
threshold on a calendar year basis, using the mileage method. BDC makes
one hundred for hire hauls within the calendar year ((of 1992)), for a
total of one hundred thousand miles. Included in this mileage figure are
the unladen or "empty" miles BDC incurs from delivery points to its
terminal. Fifteen of these hauls were interstate in nature and involved
laden travel of twenty thousand miles, including the Washington miles of
the interstate hauls where the rig made border crossings. BDC's rig also
incurred an additional eight thousand miles as a result of having to
drive unladen from the delivery point of an interstate haul to its
Washington terminal. BDC Hauling has not incurred a use tax liability
for its use of the tractor/trailer rig. Under the mileage method,
twenty-eight percent of the tractor/trailer's usage was in interstate
hauling.
(v) GV Trucking operates one tractor/trailer rig which has
previously met the retail sales and use tax exemption requirements. GV
verifies compliance with the twenty-five percent substantial use
threshold on a calendar year basis, using the revenue method. GV makes
one hundred for hire hauls within the calendar year ((of 1992)), for
which GV earns eighty thousand dollars. Fifteen of these hauls were
interstate in nature, for which GV earned twenty thousand dollars. GV
Trucking has not incurred a use tax liability for its use of the
tractor/trailer rig. Under the revenue method, twenty-five percent of
GV's usage of the tractor/trailer rig was in interstate hauling.
(vi) XYZ Trucking operates a single tractor/trailer rig which has previously met the retail sales and use tax exemption requirements. XYZ picks up two loads of cargo in Seattle, one load for delivery to Kent, Washington and another for delivery to Portland, Oregon. Upon delivery of the cargo to Kent, XYZ picks up another load for delivery to Portland, Oregon. XYZ has performed three separate hauls, even if the loads are combined on the same rig. The Seattle to Portland and Kent to Portland hauls are considered interstate hauls, the Seattle to Kent haul intrastate. If using the mileage method the mileage associated with the Seattle to Portland and Kent to Portland hauls would be combined to determine total interstate miles, even though the rig made only one trip to Portland. If using the revenue method, the revenue generated by the Seattle to Portland and Kent to Portland hauls would be considered interstate. The mileage and/or revenue associated with the Seattle to Kent haul would be considered intrastate.
(4) Special application to trailers. Motor carriers must keep appropriate records and determine qualification for the use tax exemption provided by RCW 82.12.0254 for each individual truck and tractor. Motor carriers are encouraged to keep similar records for each individual trailer. Where records are maintained to document the use of individual trailers, use tax liability for trailers must be determined on the basis of those records. However, it is recognized that some motor carriers have no system of tracking or documenting the travel of their trailers and it would be an undue burden to require such recordkeeping, particularly where a tractor may be used to pull multiple trailers and the trailers are not assigned to a specific tractor. These motor carriers may elect to determine the use tax liability attributable to their use of trailers on the basis of their actual use of the tractors.
(a) Under this method, it is assumed that there is a direct correlation between the use of tractors and the use of trailers. Whenever use tax is incurred on a tractor because of the failure to maintain the twenty-five percent interstate usage, use tax will also be due on one or more trailers. The number of trailers subject to the use tax under this method shall correspond to the fleetwide trailer to tractor ratio. Any trailer to tractor ratio resulting in a fraction shall be rounded up when determining the number of trailers subject to the use tax. For example, if the fleetwide ratio of trailers to tractors is two and one quarter to one, and one tractor fails to maintain the substantial use threshold in a given year, the motor carrier shall incur a use tax liability on three trailers. However, if two tractors fail to maintain the substantial use threshold in a given year, the motor carrier shall incur a use tax liability on five trailers.
(b) The trailer or trailers subject to use tax under this method shall be those acquired nearest to the purchase date of the tractor triggering the use tax liability for those trailers meeting the following conditions:
(i) The trailer or trailers are compatible for towing with the tractor upon which use tax is incurred; and
(ii) The trailer or trailers have not previously incurred a retail sales or use tax liability; and
(iii) The trailer or trailers have been actively used in hauling for hire in the year tax liability is incurred.
(c) Under this method of reporting, use tax liability is generally
incurred on one or more trailers whenever a tractor is subject to the use
tax. If a tractor is purchased with the intent that less than twenty-five percent of the hauls will be across state borders, it will be
presumed the tractor will also be pulling a trailer or trailers on which
use tax is also due. ((However, the motor carrier will not incur use tax
on a trailer simply because the initial use of the tractor was not a
laden for hire haul across the borders of this state, provided the
tractor would meet the substantial interstate use for future hauls under
RCW 82.12.0254.
(d) In any event and irrespective of the method of reporting,
carriers must document that the first use of each trailer was in
interstate hauling for the use tax exemption to apply to the first use.
If the trailer was purchased in Washington, the carrier must retain
evidence of having obtained a trip permit to document that retail sales
tax was not due at the time of purchase. (See also WAC 458-20-174.)
(e) The following examples show how this method would be applied to
typical situations. These examples should be used only as a general
guide. The tax status of each situation must be determined after a
review of all of the facts and circumstances.
(i))) For example, ABC Trucking has eight tractors and fifteen
trailers in its fleet. The tractors and trailers met the exemption from
retail sales tax and use tax at the time they were purchased, and it was
determined during previous annual reviews that the tractors continued to
be substantially used on interstate hauls. However, at the time of the
annual review ((which was made in January 1993,)) for the just-completed
calendar year it was determined that ((a Kenworth)) one tractor ((which
had been purchased in June 1985)) was not used at least twenty-five
percent in interstate hauls ((during 1992)). Use tax is due on this
tractor. Under this method, use tax is also due on two trailers. The
two trailers on which use tax must be reported are the two purchased most
nearly to ((June 1985,)) the purchase date of the ((Kenworth purchase))
tractor.
(((ii) DC Hauling has no system of tracking or documenting the
travel of its trailers and has elected to determine its trailer use tax
liability on the basis of its actual use of tractors. DC Hauling has a
fleetwide ratio of two trailers to one tractor. DC purchases a tractor,
the initial use of which is a laden for hire haul entirely within the
borders of this state. DC Hauling must pay retail sales tax upon the
purchase of the tractor or, if retail sales tax is not paid, use tax upon
the first use within this state. Unless DC Hauling elects to document
that the tractor otherwise continues to satisfy the substantial
interstate use provision of RCW 82.12.0254 for future hauls, use tax is
also due on two trailers.))
(5) Valuation. The value of the motor vehicle or trailer subject
to the use tax is its fair market value at the time of first use within
the review period for which the exemption cannot be maintained. However,
because the taxpayer will not know until the close of the period whether
the usage met the exemption requirements, the use tax is due and should
be reported on the last excise tax return for that review period. For
example, a motor carrier who has previously met the exemption
requirements for a particular truck determines this truck no longer was
substantially used in interstate hauls during calendar year ((1992))
1996. Use tax should be reported on the last tax return filed for
((1992)) 1996 with the taxable value based on the value of the truck at
January 1, ((1992)) 1996.
(a) The department of revenue will accept independent publications containing values of comparable vehicles if those values are generally accepted in the industry as accurately reflecting the value of used vehicles. The department will also consider notarized valuation opinions signed by qualified appraisers and/or dealers as evidence of the fair market value. In the absence of a readily available fair market value, the department will accept a value based on depreciation schedules used by the department of licensing to determine the value of vehicles for licensing purposes.
(b) The following examples show how use tax liability would be determined in typical situations. These examples should be used only as a general guide. The tax status of each situation must be determined after a review of all of the facts and circumstances.
(i) ABC Trucking purchased five trailers for use in both interstate
and intrastate for hire hauls on January 1, ((1990)) 1996. All the
necessary conditions for exemption under RCW 82.08.0263 were met;
delivery was made in Washington, and the trailers were purchased without
payment of the retail sales tax. The taxpayer uses the "line crossing"
method for determining interstate use.
ABC Trucking keeps a journal showing the origin and destination for
each haul which identifies each truck/tractor and trailer used on a per
unit basis. This journal is reviewed at the end of each calendar year
to verify compliance with the statutory provision that motor vehicles and
trailers be substantially used for transporting therein persons or
property for hire across the boundaries of the state. During the first
year of use, all five of the trailers met the "substantial use"
threshold. However, in reviewing this journal for the ((period of
January 1991 through December 1991)) 1997 calendar year, ABC Trucking
determines that two of the trailers ((purchased on January 1, 1990,))
failed to meet the twenty-five percent "substantial use" threshold
((during 1991)). ABC Trucking must remit use tax directly to the
department on its December ((1991)) 1997 excise tax return, based on the
fair market values of the two trailers as of January 1, ((1991)) 1997.
Since the taxpayer maintained specific usage records for each trailer,
the "substantial use" in interstate hauling must be met by each trailer
for which exemption is claimed. If detailed records for usage of
trailers had not been kept, use tax liability of the trailers would have
been based on the tractors. In any event, use tax liability may not be
determined based on the overall experience of a fleet of vehicles. If
a vehicle is used both in hauling for hire and in hauling the carrier's
own products, the "substantial use" is determined solely on the usage in
hauling for hire.
(ii) DB Carriers is a motor carrier which is engaged in both
intrastate and interstate for hire hauls. DB purchases and first uses
a truck in Washington on January 1, ((1992)) 1997. All the necessary
conditions for exemption under RCW 82.08.0263 were met; delivery was made
in Washington, and the truck was purchased without payment of the retail
sales tax. DB Carriers uses the "line crossing" method for determining
interstate use.
DB Carriers keeps a journal showing the origin and destination for
each haul which identifies each truck used on a per unit basis. This
journal is reviewed at the end of the ((1992)) 1997 calendar year, and
DB determines that the truck failed to meet the twenty-five percent
"substantial use" threshold. DB Carriers must remit use tax directly to
the department on its December ((1992)) 1997 excise tax return, based on
the fair market value of the truck as of January 1, ((1992)) 1997. DB
Carriers may not compute the use tax liability based upon the December
31, ((1992)) 1997, fair market value as the vehicle never satisfied the
substantial interstate use provision of RCW 82.12.0254.
(6) Leased vehicles. The use tax exemption requirements are the
same for leased vehicles as for purchased vehicles. Motor vehicles and
trailers, leased without operator are exempt from the use tax ((when all
the conditions and requirements expressed in subsection (3)(b) of this
section are satisfied. This includes meeting the requirement that first
use be in hauling across the boundaries of the state. As a condition for
retail sales tax exemption, a trip permit must be obtained if the vehicle
is first used in Washington. For continued use tax exemption, the
vehicle must also meet the twenty-five percent "substantial use"
threshold. For leased vehicles,)) if the user is, or operates under
contract with, a holder of a permit issued by the ICC or its successor
agency and the vehicle is used in substantial part in the normal and
ordinary course of the user's business for transporting therein persons
or property for hire across the boundaries of the state. This requires
that the leased vehicle be used a minimum of twenty-five percent in
interstate hauls. The taxpayer may elect to use either the fiscal year
of the business or a calendar year to determine if the leased vehicle was
used substantially in interstate hauls for hire. Where the vehicle lease
does not begin or end at the start of the calendar year (or fiscal year
if the business uses a fiscal year view period), the same requirements
apply to leased vehicles as to purchased vehicles (see subsection
(3)(((d))) (c) of this section). ((The carrier will be required to
obtain a trip permit and have a laden interstate haul on only the first
haul at the start of the lease and not each month, each year, or the
start of each lease period, provided there is no change in the vehicle
being leased.))
(a) If the leased vehicle does not meet the substantial use
requirement during the "view period," the use tax applies only to the
portion of the lease payment which is for use in Washington during the
"view period." See the examples in subsection (6)(b) of this section.
Mileage is an acceptable basis for determining instate and out-of-state
use. For the purposes of determining instate and out-of-state use of
leased vehicles or trailers where use tax is determined to be due, all
miles traveled in Washington by the leased vehicle are instate miles,
notwithstanding that they may be associated with an interstate haul. The
motor carrier must maintain accurate records of actual instate and out-of-state use to substantiate any claim that a portion of any lease
payment was exempt of use tax because of out-of-state use. Use tax will
be determined for each "view period." For example, if a truck was leased
for the years ((1992 and 1993)) 1996 and 1997 and failed to meet the
substantial use requirement in ((1992)) 1996, but met the requirement in
((1993)) 1997, use tax would only be due for the usage in Washington
which occurred in ((1992)) 1996.
(b) The following examples show how this method would be applied to typical situations. These examples should be used only as a general guide. The tax status of each situation must be determined after a review of all of the facts and circumstances.
(i) BG Hauling is a for hire carrier which on January 1, ((1991))
1996, enters into a lease agreement for a truck without operator. All
the necessary conditions for the retail sales and use tax exemptions for
the first year of the lease were met. BG Hauling verifies compliance
with the twenty-five percent substantial use threshold on a calendar year
basis.
BG determines that this truck failed to meet the twenty-five percent
substantial use threshold for calendar year ((1992)) 1997. Use tax will
be due beginning with the period for which the exemption was not met, in
this case beginning with January ((1992)) 1997. However, BG Hauling may
report use tax only on that portion of each lease payment attributable
to actual instate use, provided it maintains accurate records
substantiating the truck's instate and out-of-state activity. Only
mileage incurred while actually outside Washington will be considered
out-of-state mileage. If BG Hauling continues to lease this truck in
((1993)) 1998, usage will again be reviewed for that period and use tax
may or may not be due for the ((1993)) 1998 lease payments, depending on
whether the vehicle was used substantially in interstate hauls during
that year.
(ii) MG Inc. is an equipment distributor which, in addition to
hauling its own product to customers, is engaged in hauling for hire
activities. MG is a holder of an ICC permit. MG enters into a lease
agreement for a truck without operator on January 1, ((1992)) 1996. All
conditions for retail sales and use tax exemption are satisfied for the
first year of the lease.
Based upon the truck's for hire hauling activities during the
((1993)) 1997 calendar year, MG determines that the use of the truck
failed to satisfy the twenty-five percent substantial use threshold. MG
must remit use tax upon the amount of lease payments made during ((1993))
1997 at the time it files its last tax return in ((1993)) 1997. Provided
accurate records are maintained to substantiate instate and of out-of-state use, MG may remit use tax only upon that portion of each lease
payment attributable to actual instate use. While only the hauling for
hire activities are reviewed when determining whether the truck satisfies
the substantial interstate use threshold, once it is established the
exemption cannot be maintained, the use tax liability is based upon all
instate activity, including the motor carrier's hauling of its own
product.
(7) Component parts. RCW 82.12.0254 also provides a use tax
exemption for the use of tangible personal property which becomes a
component part of any motor vehicle or trailer used for transporting
therein persons or property for hire. This exemption is available
((whether the)) for motor vehicles or trailers ((is)) owned by, or
operated under contract with, a person holding a carrier permit issued
by the Interstate Commerce Commission or its successor agency authorizing
transportation by motor vehicle across the boundaries of this state.
Since ((the Interstate Commerce Commission requires)) carriers are
required to obtain these permits only when the carrier is hauling for
hire, the exemption applies only to tangible personal property purchased
for vehicles which are used in hauling for hire. The exemption for
component parts will apply even if the parts are for use on a motor
vehicle or trailer which is used less than twenty-five percent in
interstate hauls for hire, provided the vehicle is used in hauling for
hire.
(a) For the purposes of this section, the term "component parts"
means any tangible personal property which is attached to and becomes an
integral part of the motor vehicle or trailer. It includes such items
as motors, motor and body parts, batteries, paint, permanently affixed
decals, and tires. "Component parts" includes the axle and wheels,
referred to as "converter gear" or "dollies," which is used to connect
a trailer behind a tractor and trailer. "Component parts" can include
tangible personal property which is attached to the vehicle and used as
an integral part of the motor carrier's operation of the vehicle, even
if the item is not required mechanically for the operation of the
vehicle. It ((would)) includes cellular telephones, communication
equipment, fire extinguishers, and other such items, whether themselves
permanently attached to the vehicle or held by brackets which are
permanently attached. If held by brackets, the brackets must be
permanently attached to the vehicle in a definite and secure manner with
these items attached to the bracket when not in use and intended to
remain with that vehicle. It does not include antifreeze, oil, grease,
and other lubricants which are considered as consumed at the time they
are placed into the vehicle, even though required for operation of the
vehicle. It does include items such as spark plugs, oil filters, air
filters, hoses and belts.
(b) The following items do not qualify for exemption from the use tax under the provisions of RCW 82.12.0254:
(i) Equipment, tools, parts and accessories which do not become a component part of a motor vehicle or trailer used in transporting persons or property for hire; and
(ii) Consumable supplies, such as oil, grease, other lubricants,
cleaning solvents and ice.
[Statutory Authority: RCW 82.32.300. 94-18-004, 458-20-17401, filed 8/24/94, effective 9/24/94.]