Rev. Rul. 79-192

ISSUE Are the streetsweeper vehicles and streetsweeper mechanisms described below subject to the manufacturers excise tax on truck chassis and bodies and truck parts or accessories?

FACTS

Several companies manufacture and sell streetsweeper vehicles and streetsweeper mechanisms for those vehicles. The streetsweeper vehicles not only sweep the streets but also lift the sweepings into the vehicles and transport the sweepings over the highway. Although the sweeper mechanisms are sold with the vehicles, the manufacturers also sell them as separate articles for use as repair or replacement parts.

The vehicles are used for the removal of light debris, broken glass, sand, grass clippings, leaves, dust, small aggregate, refuse and trash found on streets and other paved surfaces such as parking lots. They have varying sweeping and traveling speeds and can travel at normal city speeds when in transit to and from the job and dump sites. The sweeping mechanisms cannot be operated effectively when the vehicles are traveling over 15 miles per hour.

The following are the specific situations in question.

Company W manufactures and sells three-wheel streetsweeper vehicles steered by a single rear wheel which provides maneuverability for sweeping purposes. They are equipped with retractable gutter brooms, elevator assemblies for lifting the sweepings into the vehicle, and front dumping hoppers for carrying the sweepings. The front dumping hoppers unload the sweepings at the dump site or into other trucks for transportation to the dump site.

Company X purchases an automobile truck chassis and converts it into a shortened chassis for a streetsweeper vehicle. The company then produces a complete vehicle by mounting on the converted chassis various items of equipment including a gutter broom, a main rear pick-up broom, a dirt conveyor, a hopper and dump for carrying the sweepings, a power take-off, and a water tank, hose, nozzles, and pumps.

Company Y purchases an automobile truck chassis and uses it in constructing a streetsweeper vehicle. The company cuts out the chassis frame and removes the propeller bearings and shaft, the springs, the exhaust piping, and the rear portion of the floor of the cab. A specially designed sweeper frame is mounted on the remaining portion of the chassis. Then, streetsweeper equipment is mounted on the special frame. The equipment consists of a dirt box for carrying the sweepings, an elevator assembly for lifting the sweeping into the dirt box, a control mechanism, a dust abatement tank assembly, and broom assemblies.

Company Z purchases automobile truck chassis for use without significant modification as chassis for streetsweeper vehicles. No further manufacturing is performed on the chassis. This company manufacturers the bodies for its streetsweeper vehicles and also manufactures certain mechanisms for use in connection with those bodies. These bodies are constructed like a conventional highway type enclosed automobile truck body. However, a flue or duct-type chute runs from this type of body to a streetsweeper mechanism that is attached to the side of the truck body and consists of a single gutter broom with a vacuum attachment. It is mounted in a framework having three small wheels and lifts the sweepings from the street and draws them into the vehicle. The mechanism is operated by a person riding outside of the truck cab sitting in a seat attached to the truck body.

LAW, REGULATIONS, AND ANALYSIS

The applicable sections of the Internal Revenue Code are section 4061(a)(1), which imposes a manufacturers excise tax on truck chassis and bodies, section 4061(b)(1), which imposes a tax on truck parts or accessories, and section 4061(a)(2), which excludes from the tax imposed by section 4061(a)(1) truck chassis and bodies suitable for use with a vehicle having a gross vehicle weight of 10,000 pounds or less.

Under sections 48.4061(a)-1(a)(2) and (d)(1) of the Manufacturers and Retailers Excise Tax Regulations, a truck chassis or body is generally taxable if it is, in any sense, reasonably suitable for use as a component part of a highway vehicle, which is a vehicle designed to transport a load over the public highways, whether or not also designed to perform other functions.

Under section 48.4061(a)-1(a)(3)(i) of the regulations, the taxable sale price of a vehicle includes amounts attributable to loading and unloading equipment.

Under section 48.4061(a)-1(a)(3)(ii) of the regulations, amounts charged for loading or unloading equipment are part of the taxable sale price of a body or chassis because such equipment contributes to the load-carrying function of the truck. However, amounts charged for equipment (or machinery) installed on a taxable chassis or body are not part of the taxable sale price if the equipment does not contribute to the highway transportation function of the chassis or body, and the charge is reasonable and supported by adequate records.

Under section 48.4061(b)-2 of the regulations, an article designed to be attached to, or used with, a vehicle is not a taxable part or accessory if it is the load being transported and its primary function is to serve a purpose unrelated to the vehicle as such.

An article "contributes" to the highway transportation or load-carrying function of a vehicle for purposes of the foregoing regulations only if it contributes as much or more to the highway transportation function than to the nontransportation function. In other words, an item which contributes primarily to the nonhighway transportation function of the vehicle is not taxable.

The vehicles manufactured by companies W, X, Y, and Z are all highway vehicles within the definition provided by the regulations and are therefore subject to the tax imposed by section 4061(a) of the Code. However, a chassis or body suitable for use with a streetsweeper vehicle having a gross vehicle weight of 10,000 pounds or less is excluded from the tax imposed by section 4061(a)(1) under section 4061(a)(2).

Company X and company Y purchase automobile truck chassis that require modification to permit their use as chassis for the vehicles sold by those companies. To accomplish this modification, X shortens the wheel base, and Y extensively converts the chassis. In each case, the conversion of the chassis is an act of further manufacture, because a new and different chassis is the result of the conversion. Therefore, X and Y are the manufacturers of the chassis for the streetsweeper vehicles they sell. However, company Z is not the manufacturer of the chassis for the vehicles it sells. Rather, it resells the chassis as part of a streetsweeper vehicle.

HOLDINGS

Companies W, X, and Y are liable for tax under section 4061 of the Code on the bodies and chassis of the vehicles they sell. Company Z is liable for tax on the body of the vehicle it sells.

The vehicles produced by the four manufacturers are sold with various items of equipment designed to clean debris from the streets and lift it into the body of the vehicle. Such items of equipment that lift the sweepings into the vehicle once they have been gathered from the street by brooms are taxable as loading equipment for purposes of section 4061(a)(1) and section 4061(b) because they do not contribute primarily to the nonhighway transportation function of the vehicle. Thus, the elevator assemblies on the vehicles of W and Y and the dirt conveyor on the vehicle of X are taxable. The following items primarily perform the nontransportation function of street cleaning and are excludable from the tax base for purposes of section 4061(a) of the Code, provided that the portion of the price reasonably allocable to such items can be established by adequate records; the gutter brooms and their motive equipment and controls on the vehicles of W; the brooms and their motive equipment, water hoses and nozzles, and control mechanism for the foregoing on the vehicles of X; the broom assemblies and their motive equipment, dust abatement hoses and nozzles, and control mechanisms for the foregoing on the vehicles of Y; and the gutter broom and its motive equipment, vacuum equipment and operators mount and controls on the vehicles of Z. The foregoing items are also not subject to the tax imposed by section 4061(b) when sold separately. Compare Rev. Rul. 62-218, 1962-2 C.B. 235; Rev. Rul. 69-206, 1969-1 C.B. 278; and Rev. Rul. 76-506, 1976-2 C.B. 334.

Pursuant to the authority contained in section 7805(b) of the Code, the conclusion that the vehicle manufactured by W is taxable under section 4061(a) of the Code will be applied only to vehicles sold after October 1, 1979. Rev. Rul. 63-191, 1963-2 C.B. 478, holds that the streetsweeper vehicles of X, Y, and Z are subject to the tax imposed by section 4061(a)(1) of the Code with no exclusion for any articles of street cleaning equipment. Rev. Rul. 63-191 is modified and superseded.