Rev. Rul. 81-86

ISSUE

Does the federal highway use tax imposed by section 4481(a) of the Internal Revenue Code apply under the circumstances described below?

FACTS

M, a trucking company organized under the laws of the Canadian province of British Columbia, transports goods to and from points in British Columbia and on occasion to and from points in the states of Washington, Oregon, and California.

In order for a commercial truck to operate in interstate commerce within the United States, the motor vehicle registration laws of each state the truck passes through must be complied with. In the case of Washington, Oregon, and California, state law requires all trucks operated in the state to be registered in the state. To alleviate the burden of multiple registration on trucks operating in interstate commerce, however, these states and certain others, together with the Province of British Columbia, have entered into a reciprocal agreement known as the Uniform Vehicle Registration Proration and Reciprocity Agreement (U.V.R.P.R.A.).

Under the U.V.R.P.R.A., operators of commercial fleet interstate vehicles may "base state" their vehicles in any contracting state or province and secure permission to legally pass through any other contracting state or province by obtaining a special license referred to in the Agreement as a "prorate license." An operator obtains such a license for a vehicle by filing certain information concerning the vehicle with the state and by paying a percentage of the normal registration fee for the vehicle, based upon the number of miles driven in that state compared to the total miles driven in other contracting states. The operator then receives a special identification card from the state that designates the vehicle as part of a fleet that has fully complied with the registration requirements of that state.

In this case, M, under the U.V.R.P.R.A., has registered its trucks in British Columbia as the "base state" and has obtained prorate licenses and identification cards from the states of Washington, Oregon, and California.

LAW AND ANALYSIS

Section 4481(a) of the Code imposes a tax upon the use of any highway motor vehicle which (together with the semitrailers and trailers customarily used in connection with highway motor vehicles of the same type as such highway motor vehicle) has a taxable gross weight of more than 26,000 pounds.

Section 4481(b) of the Code provides that the tax imposed by section 4481(a) shall be paid by the person in whose name the highway motor vehicle is, or is required to be, registered under the law of the state in which such vehicle is, or is required to be, registered.

Under section 4482(c), the term "state" for purposes of section 4481 means a state, a territory of the United States, and the District of Columbia, and the term "use" means use in the United States on the public highways.

Section 41.4481-3 of the Highway Use Tax Regulations defines the term "registered" when used with reference to a highway motor vehicle to mean (1) registered under the law of any state or territory of the United States or of the District of Columbia, or (2) required to be registered under the law of any state or territory of the United States in which such highway motor vehicle is operated or situated or, in case the vehicle is operated or situated in the District of Columbia, under the law of the District of Columbia. Any highway motor vehicle that is operated under a dealer's tag, license, or permit is considered to be registered in the name of such dealer. Under the regulations, a highway motor vehicle is not considered to be registered solely by reason of the fact that there has been issued a special permit for operation of the vehicle at particular times and under specified conditions.

Rev. Rul. 57-224, 1957-1 C.B. 424, holds that liability for the federal highway motor vehicle use tax is not incurred by foreign trucking firms on the use of vehicles within the United States unless such vehicles are, or are required to be, registered under the laws of any state in which they are operated. That revenue ruling further concludes that compliance with a state law requiring the purchase of a special permit or identification tag for purposes of a state highway use tax law does not constitute "registration" for purposes of the federal highway motor vehicle use tax.

In Little Audrey's Transportation Co. v. United States, 369 F. Supp. 329 (D. Neb. 1974), aff'd 508 F.2d 846 (8th Cir. 1974), the court held that under a reciprocal proration agreement (similar to the U.V.R.P.R.A.) prorate licensing did not constitute registration.

Section 14 of the U.V.R.P.R.A. defines "base state" as, in the case of a commercial vehicle, the state or province in which the vehicle is most frequently dispatched, garaged, serviced, maintained, operated or otherwise controlled, or also, in the case of a fleet vehicle, the state or province to which it is allocated for registration under statutory requirements. Section 50 of the agreement provides that the owner of a fleet may register the vehicles of that fleet in any contracting state by applying for prorationing in the manner specified in the agreement and paying the specified prorated registration fee. Under section 1(b) of the agreement, certain noncommercial and nonfleet vehicles that are properly registered in a contracting state are exempt from registration and payment of fees in each other contracting state.

M in this case is registered in the province of British Columbia as a "base state." M is not required to pay the contracting states of Washington, Oregon, or California the normal registration fees, nor to obtain a registration card for vehicles operating in those states. However, M is required to obtain special identification cards for each vehicle from each state. M is also required to supply descriptive information concerning each vehicle to each state, as well as mileage information, for the purpose of apportioning fleet registration fees. Such licensing is required if M is to operate its vehicles in those states. Accordingly, M's rights and duties in relation to the prorate licensing states represent a form of registration. Further, the U.V.R.P.R.A. clearly refers to the prorate licensing of vehicles in contracting states as registration. Therefore, the prorate licensing in Washington, Oregon, and California constitute registration in those states for purposes of the federal highway use tax.

Rev. Rul. 57-224 is distinguishable in that it involves Canadian-owned vehicles that are allowed by certain states bordering on Canada to operate within those states without paying the usual registration or license fee. Some of the states require the vehicle owners to pay a state highway use tax or truck-mile tax and, for this purpose, require the owners to obtain special permits or identification plates for all trucks operated within the state. This requirement, although somewhat similar to a motor vehicle registration, is for the purpose of paying highway use taxes that are imposed by state law in addition to motor vehicle registration requirements. By contrast, the U.V.R.P.R.A. prorate licensing procedure is a special form of, or substitute for, the normal registration procedure within a state.

HOLDING

M is liable for the federal highway use tax under section 4481(a) on the use of its vehicles on the public highways in the United States.

The Internal Revenue Service will no longer follow the decision in Little Audrey's Transportation Co. that prorate licensing, under a reciprocal proration agreement (similar to the U.V.R.P.R.A.), did not constitute registration.

PROSPECTIVE APPLICATION

Under the authority of section 7805(b) of the Code, the conclusion in this revenue ruling will not be applied to the use of vehicles on the public highways prior to July 1, 1981.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 57-224 is distinguished.