Revenue Administrative Bulletin 2023-12

Note: A taxpayer may rely on this Revenue Administrative Bulletin (RAB) until it is revoked by Treasury or until a law on which this RAB is based is altered by legislation or by binding judicial precedent. See MCL 205.6a and RAB 2016-20.

RAB 2023-12. This RAB replaces RAB 2016-2 and explains the sales and use tax treatment of property used by interstate motor carriers engaged in interstate commerce, i.e., the “rolling stock” exemption. This RAB does not discuss the tax treatment of rolling stock used in rail operations under MCL 205.54m and MCL 205.94l.

ISSUES

I.             What is the rolling stock exemption?

II.            What is “rolling stock”?

III.           What is an “interstate motor carrier”?

IV.           What does “used in interstate commerce” mean?

CONCLUSIONS

I.             THE EXEMPTION

The General Sales Tax Act (GSTA) exempts the “sale of rolling stock purchased by an interstate motor carrier or for rental or lease to an interstate motor carrier and used in interstate commerce.” MCL 205.54r(1)(b).

The Use Tax Act (UTA) exempts “the storage, use, or consumption of rolling stock used in interstate commerce and purchased, rented, or leased by an interstate fleet motor carrier.” MCL 205.94k(4).

In other words, the GSTA exempts the sale of rolling stock while the UTA exempts the storage, use and consumption of it. However, both Acts have the same three requirements for property to qualify for the rolling stock exemption:

1.            The property must be “rolling stock;”

2.            The rolling stock must be purchased by, or purchased for rental or lease to, an “interstate motor carrier” for purposes of the GSTA; or purchased, rented, or leased by an “interstate fleet motor carrier” for purposes of the UTA (the terms are defined identically; this RAB refers to both, collectively, as “interstate motor carrier”) (MCL 205.54r(2)(a) and MCL 205.94k(6)(d)); and

3.            The rolling stock must be “used in interstate commerce.”

Each of these requirements is discussed in greater detail below.

II.            ROLLING STOCK

MCL 205.54r(2)(d) and MCL 205.94k(6)(i) identify three types of property that may qualify as “rolling stock” for purposes of this exemption:

1.            “Qualified trucks.” A “qualified truck” is a commercial motor vehicle power unit that has either (i) 2 axles and a gross vehicle weight rating in excess of 10,000 pounds, or (ii) 3 or more axles regardless of its gross vehicle weight rating. MCL 205.54r(2)(c), MCL 205.94k(6)(g). “Gross vehicle weight rating” is the value specified by the manufacturer as the loaded weight of a single vehicle. MCL 257.18b(2).

2.            Trailers designed to be drawn behind a “qualified truck.”

3.            Parts or other tangible personal property affixed to or to be affixed to and directly used in the operation of either a “qualified truck” or trailer designed to be drawn behind a “qualified truck.” The exemption also includes parts or other property that are purchased and affixed to a “qualified truck,” or trailer designed to be drawn behind a “qualified truck,” after the original purchase.

Parts or other property do not need to replace an item that was a component part of the truck or trailer when it was sold or purchased to qualify as rolling stock. Items that may be   exempt include, but are not limited to, global positioning systems (GPS), in-cab heaters, alternate power units, straps, chains, and refrigeration units, so long as they are affixed to (or are to be affixed to) and directly used in the operation of a qualified truck or trailer. The term “affixed” is not defined by statute, therefore it is given its common and ordinary meaning. “Affix” means to attach in any way or to attach physically. http://www.merriam-webster.com/dictionary/affix (last visited June 5, 2023).

Example 1:

ABC Inc. (ABC) operates a qualified trailer. The trailer has metal rollers welded to it that are used to attach straps to the trailer to secure its load. The rollers are the sole method by which the straps can be attached to the trailer. Without the straps, the trailer would be unable to haul its load. The straps are affixed to the trailer and are used directly in its operation. Therefore they are exempt.

Example 2:

Assume the same facts as Example 1. However, when a load is too heavy to secure with only the straps, ABC uses chains in addition to or in lieu of the straps. To secure a load, the chains are hooked to the trailer. When the chains are not in use, they are attached to a rack on the trailer. Without the chains, the trailer would not be capable of hauling loads of certain weights/sizes. The chains are affixed to the trailer and are used directly in its operation. Therefore, they are exempt.

Example 3:

Assume the same facts as Example 1. ABC also sometimes uses a tarp to secure its load; this is necessary to the operation of the trailer to ensure none of its contents blow off the trailer. The tarp is held in place by bungee cords, which are affixed to the trailer. The tarp and the bungee cords are used directly in the trailer’s operation; however, the tarp – unlike the bungee cords – is not affixed to the trailer. The bungee cords are exempt, but the tarp is taxable.

Example 4:

Assume the same facts as Example 1. ABC also sometimes uses an automated tarper to secure its load; this is necessary to the operation of the trailer to ensure none of its contents blow off the trailer. The automated tarper is attached to the trailer by bolts. The tarp is spooled within the automated tarping unit when not in use. The automated tarper, including the tarp, is used directly in the trailer’s operation, and is affixed to the trailer. Therefore, it is exempt.

III.           INTERSTATE MOTOR CARRIER

An “interstate motor carrier” is defined as:

A person engaged in the business of carrying persons or property, other than themselves, their employees, or their own property, for hire across state lines, whose fleet mileage was driven at least 10% outside of this state in the immediately preceding tax year. MCL 205.54r(2)(a) and MCL 205.94k(6)(d).

If a person does not have an immediately preceding tax year on which to base its fleet mileage, pursuant to the statutory definition, it is not eligible for the exemption.

To qualify as an “interstate motor carrier,” the primary purpose of the business must be to transport persons or property for hire across state lines. Midwest Power Line, Inc. v Dep’t of Treasury, 324 Mich App 444, 447 (2018).  The fact that a business hauls its own property or employees, in addition to the property of others or persons that are not its employees, does not disqualify it as an interstate motor carrier so long as its primary purpose is to transport persons or property for hire across state lines and it meets the other requirements of the definition.

Example 5:

ABC Inc. (ABC) is primarily engaged in the business of carrying its own property with its qualified trucks. Occasionally, ABC will backhaul property of other businesses. ABC is not engaged in the business of carrying persons or property other than its own property. Therefore, ABC may not claim the exemption on its qualified trucks.

Example 6:

ABC Inc. (ABC) is primarily engaged in the business of carrying property of others with its qualified trucks. Occasionally, ABC will use its qualified trucks to haul its own property. Assuming ABC meets all the other requirements of the exemption, ABC is entitled to an exemption on the entire sales/purchase price of the qualified trucks.

Example 7:

ABC Inc. (ABC) provides repair and maintenance services to electrical utilities, specializing in emergency restoration services. If a storm knocks out the power, ABC may be dispatched to another state to assist with power restoration. ABC’s trucks leave its Michigan facility empty, stop at the customer’s storage yard to pick up the necessary supplies, and then proceed to the repair site. When finished, ABC’s trucks return to Michigan empty. ABC is not hired by utility companies to transport power line supplies across state lines. Rather, it is hired to repair storm damage to power lines and to restore power to the affected areas. The fact that ABC picks up those supplies from the customers’ supply depots and transports them to the job site is merely incidental to its primary purpose of repairing the power systems. The fact that ABC hauls customers’ property across state lines is not, by itself, sufficient to establish that it is an interstate fleet motor carrier. ABC does not meet the requirements of an interstate motor carrier for rolling stock in this instance.

IV.           USED IN INTERSTATE COMMERCE

In addition to the above requirements, rolling stock must be used in interstate commerce to qualify for the exemption. MCL 205.54r(1)(b) and MCL 205.94k(4). Rolling stock may be used in interstate commerce two ways:

1.            The rolling stock physically crosses state lines as provided by MCL 205.54r(2)(a) and MCL 205.94k(6)(d)); or

2.            The rolling stock does not physically cross state lines, but it carries persons or property that originated from, or are destined for, locations outside of Michigan. Alvan Motor Freight, Inc, et al, v Dep’t of Treasury, 281 Mich App 35, 41-43, (2008).