Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 68-1

1968-1 C.B. 8

Sec. 48

IRS Headnote

Improvements consisting of a paved yard, concrete aprons, concrete pad, yard bumpers, and yard lighting made to a trucking terminal by a taxpayer engaged in the business of furnishing transportation services are `section 38 property' for investment credit purposes. However, the fence surrounding the terminal does not qualify as `section 38 property.'

Full Text

Rev. Rul. 68-1

Advice has been requested whether, under the circumstances described below, certain improvements made to a trucking terminal qualify as `section 38 property' for investment credit purposes.

The improvements made at the trucking terminal consist of a paved yard, concrete aprons, concrete pad, yard bumpers, yard lighting and a fence surrounding the terminal. None of these improvements were made to a building. No part of the yard is used for employee parking.

The taxpayer is engaged in short and long haul trucking, and owns tractors, trailers, and real property, including terminal facilities. Thus, the taxpayer is engaged in the business of furnishing transportation services and uses the terminal in that business.

Section 38 of the Internal Revenue Code of 1954 allows a credit against Federal income tax for qualified investment in `section 38 property.' The determination of what property qualifies as `section 38 property' is made in accordance with the rules provided in section 48 of the Code.

Section 48(a)(1) of the Code provides, in pertinent part, that the term `section 38 property' means tangible personal property, or other tangible property (not including a building and its structural components) but only if such property is used as an integral part of specific activities including the furnishing of transportation services. In order to qualify as `section 38 property,' the property must also be depreciable property and have a useful life of 4 years or more.

Section 1.48-1(d)(1) of the Income Tax Regulations provides, in pertinent part, that other tangible property used as an integral part of furnishing transportation services by a person engaged in a trade or business of furnishing such services, may qualify as section 38 property.

Section 1.48-1(d)(4) of the regulations provides, in pertinent part, that property is used as an integral part of one of the specified activities, including the furnishing of transportation services, if it is used directly in the activity and is essential to the completeness of the activity. This section of the regulations also provides, in part, that property such as pavements, parking areas, or inherently permanent outdoor lighting facilities, although used in the operation of a business, ordinarily is not used as an integral part of any of the specified activities.

In this case, the activity of the taxpayer in operating its trucking terminal is an integral part of the furnishing of transportation services. The paving, concrete aprons, concrete pad, yard bumpers, and yard lighting, constructed in the terminal yard, are all integral parts of the activity necessary to loading and unloading freight at the terminal. The paving is essential to the completeness of the transportation activity; the concrete aprons and pads are necessary in certain critical areas of the terminal yard to provide parking support in areas where heavy loads must be supported on small surface areas. The yard bumpers define the terminal yard and allow for the safe parking and positioning of trailers of various lengths. The yard lighting here is also considered an integral part of the transportation activity since a large part of the terminal work is performed at night.

In Revenue Ruling 66-89, C.B. 1966-1, 7, fences used in connection with raising livestock were classified as `section 38 property' because farm fences were absolutely necessary to confine the livestock in pastures. However, in the present case, the fence surrounding the terminal is not used directly in the transportation activity as contemplated in section 1.48-1(d)(4) of the regulations, but is merely incidental to the operation of the taxpayer's business.

Accordingly, in this case the improvements consisting of a paved yard, concrete aprons, concrete pad, yard bumpers, and yard lighting made to the trucking terminal by the taxpayer, which is engaged in the business of furnishing transportation services, are `section 38 property' for investment credit purposes. However, the fence surrounding the terminal does not qualify as `section 38 property.