Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 65-62

1965-1 C.B. 106

IRS Headnote

A portion of the automobile and house trailer motor vehicle registration license fees for the State of Oklahoma is deductible as a personal property tax. The motor vehicle registration license fees imposed on other types of vehicles under the Oklahoma Statutes are not deductible as a personal property tax. However, to the extent that any vehicle is used for business purposes, the portion of the total motor vehicle registration license fee paid which is not otherwise deductible and which corresponds to the portion of business use is deductible as a business expense.

Full Text

Rev. Rul. 65-62 /1/

Advice has been requested regarding the deductibility of the Oklahoma Motor Vehicle Registration Fees imposed by Title 47 Oklahoma Statutes 1961, section 22.5 et seq., as a personal property tax under the provisions of section 164 of the Internal Revenue Code of 1954, as amended by section 207 of the Revenue Act of 1964, Public Law 88-272, C.B. 1964-1 (Part 2), 6.

Title 47 Oklahoma Statutes 1961, section 22.5 et seq., provides the various methods of assessing the motor vehicle registration license fees. There are two subsections therein that impose motor vehicle registration license fees based, in part, on the factory delivered price of the specific vehicle. The remaining subsections therein impose the motor vehicle registration license fees based upon criteria other than the valuation of the specific motor vehicle.

The subsection imposing the motor vehicle registration license fees for automobiles provides that the fees are assessed in the following manner: (a) on a new automobile, in the first year owned or possessed, the registration fee is $19 plus $1.50 for each $100 of factory delivered price, or major fraction thereof, in excess of $600; (b) for the second through the tenth year, the registration fee is 90 percent of the previous year's fee; and, (c) for the eleventh and subsequent years, the registration fee is based upon a sliding scale (according to value) ranging upward from a minimum of $5 except that the maximum fee for a car more than twenty years old is $5.

The subsection imposing the motor vehicle registration license fees for house trailers provides that the fees are assessed in the following manner: (a) on a new house trailer, for the first year, the registration fee is $15 plus $.50 for each $100, or major fraction thereof, over $1,500, of its factory delivered price; and, (b) for the second and subsequent years, the registration fee is 90 percent of the previous year's fee, but in any event a minimum of $15.

Section 164(a) of the Code provides the general rule that State and local personal property taxes shall be allowed as a deduction for the taxable year within which paid or accrued. Subsection (b)(1) thereof, defines "personal property tax" as an ad valorem tax which is imposed on an annual basis in respect of personal property.

Under section 1.164-3(c) of the Income Tax Regulations, in order to qualify as a personal property tax, the tax must meet three tests. The first is that the tax must be ad valorem--that is, substantially in proportion to the value of the personal property. A tax which is based entirely on criteria other than value does not qualify as ad valorem. However, a tax which is partly based on value and partly based on other criteria may qualify in part. For example, in the case of a motor vehicle tax of one percent of value plus 40 cents per hundred-weight, the part of the tax equal to one percent of value qualifies as an ad valorem tax and the balance does not qualify.

The second test is that the tax must be imposed on an annual basis; and, the third test is that the tax must be imposed in respect of personal property.

A tax may be considered to be imposed in respect of personal property even if in form it is imposed on the exercise of a privilege. For example, an annual ad valorem tax qualifies as a personal property tax although it is denominated a registration fee imposed for the privilege of registering motor vehicles or of using them on the highways.

Accordingly, based upon the foregoing, the portion of the Oklahoma motor vehicle registration license fee paid for an automobile in excess of the flat $19 for the first year qualifies as a deductible personal property tax. For the second through tenth year, the motor vehicle registration license fee paid is deductible to the extent of 90 percent of the amount deductible in the immediately preceding year as a personal property tax. For the eleventh and subsequent years of the automobile's life, the portion of the registration license fee paid which exceeds $5 is deductible.

The portion of the motor vehicle registration license fee paid in excess of the flat $15 each year for a house trailer is deductible as a personal property tax.

The flat $19 of the registration license fee paid for the automobile and the flat $15 of the registration license fee paid for the house trailer in the first year, and proportionate corresponding amounts for subsequent years, are not deductible because they are not ad valorem.

The motor vehicle registration license fees imposed on other types of vehicles under the Oklahoma Statutes do not meet the "ad valorem" requirement and are, therefore, not deductible as a personal property tax.

However, where any vehicle is used for business purposes, the portion of the total motor vehicle registration license fee paid which is not otherwise deductible and which corresponds to the portion of business use is deductible as a business expense.

/1/ Also released as Technical Information Release 697, dated Feb. 19, 1965.