Rev. Rul. 81-72

1981-1 C.B. 497, 1981-9 I.R.B. 50.

                       Internal Revenue Service
                                 Revenue Ruling

                            ROAD STRIPING EQUIPMENT

                            Published: March 2, 1981

26 CFR 48.4061(a)-1: Imposition of tax; exclusion for light-duty trucks, etc

  Road striping equipment. Manufacturers' sales of thermoplastic striping units and thermoplastic pot melters that are installed on tax-paid truck chassis and used to apply line markings to roads and to transport the thermoplastic to the job site are taxed under section 4061(a)(1) of the Code.  Amounts charged for components of the striping units that perform nontransportation functions are excludable from the tax base.

ISSUE

  Whether sales by the manufacturer of a thermoplastic striping unit and a thermoplastic pot melter that are installed on tax-paid truck chassis are subject to the manufacturers excise tax imposed by section 4061(a)(1) of the Internal Revenue Code.

FACTS

  The thermoplastic striping unit, mounted on a tax-paid truck chassis, applies line markings to streets and highways.  The unit first applies a tac coat, a hot liquid which acts to dry the highway and to help the thermoplastic to better adhere to it.  It then applies thermoplastic marking material and glass beads for reflectivity.

  The unit consists of a platform, a spray pot that contains the melted thermoplastic material and that is jacketed with a hot oil heating system to maintain the temperature of the material, jacketed hoses and manifolds through which thermoplastic material passes for delivery into spray guns that are mounted on carriages, a bead tank to give the markings immediate reflectivity, a tac coat tank, and an air compressor to force material from the spray pot, bead tank, and tac coat tank, and to control the movement of the spray gun carriages.  The spray equipment is controlled by operators from a control panel mounted on the platform.

  Additional equipment may include an intercom system to permit the operators to communicate with the driver during striping operations, flashing warning lights that stand above the platform, floodlights to permit night striping operations, a mechanical pointer, a footage counter, a cab console control for circuit breakers, lights and switches to control flashing lights and switches for the spraying system, an intermittent line mechanism, control panel seats, a flashing signboard, a speed meter to provide audio-visual alarms to the driver in operations, and optical pointer.  This equipment is used only at the job site in connection with thermoplastic application operations.

  Although the thermoplastic material could be transported to the job-site by this unit, the manufacturer recommends that it be transported by the thermoplastic pot melter described below, rather than by this unit, because the spray guns must be tested before each day's striping activities and using the melter would avoid unloading problems should the spray guns not function at the job site.

  The thermoplastic pot melter is mounted on a tax-paid truck chassis and transports the material to the job site, where it is transferred to the striper through hoses by force of gravity. Essentially, the unit consists of two or four gas-heated, jacketed pots that melt the granular thermoplastic, a platform, LP gas-fired burners, and a nagitator powered by a power take-off and/or an auxiliary gas engine.

LAW AND ANALYSIS

  Under section 4061(a)(1) of the Code, a tax is imposed on sales of automobile truck bodies and chassis by the manufacturer.

  Under sections 48.4061(a)-1(a)(2) and (e)(1) of the Manufacturers and Retailers Excise Tax Regulations, a truck body or chassis is taxable, if it is, in any sense, reasonably suitable for use as a component part of a highway vehicle (as defined in section 48.4061(a)-1(d)(1)).

  Section 48.4061(a)-1(d)(1) of the regulations provides that the term 'highway vehicle' means any self-propelled vehicle, or any trailer or semitrailer, designed to perform a function of transporting a load over public highways, whether or not also designed to perform other functions.

  Section 48.4061(a)-1(a)(3)(i) of the regulations includes as part of a taxable truck chassis or body equipment that is installed on a taxable chassis or body and that contributes to the highway transportation function of the chassis or body.  This section of the regulations states that loading and unloading equipment is an example of equipment that contributes to the highway transportation function of a chassis or body.

  Section 48.4061(a)-1(a)(3)(ii) of the regulations provides that amounts charged for equipment installed on a taxable chassis or body are not part of the taxable sale price if (A) such equipment does not contribute toward the highway transportation function of

the chassis or body and (B) the reasonableness of the charge is supported by adequate records.

  Rev. Rul. 74-47, 1974-1 C.B. 307, holds that power take-off systems and components thereof that are designed to operate both taxable and nontaxable equipment are not taxable under section 4061(b) of the Code if primarily designed to operate nontaxable equipment.  This test is equally appropriate under section 4061(a)(1) for power take-offs.

  Rev. Rul. 80-237, 1980-35 I.R.B. 9, holds that sales by the manufacturer of certain paint striping equipment units that are mounted on tax-paid truck chassis are subject to the tax imposed by section 4061(a)(1) of the Code but amounts charged for equipment that does not contribute to the highway transportation function are not part of the taxable sales price.

  The thermoplastic striping unit described above is a component part of a vehicle designed to transport a load over the public highway to a job site. The platform, spray pot, bead tank and tac coat are designed to contribute to the highway transportation of thermoplastic material to the job site.  Thus, these articles constitute a truck body of a highway vehicle.  The fact that the manufacturer recommends that thermoplastic material not be transported to the job site in the striper is not material because the recommendation is based on the possibility that the spray guns may malfunction at the job site rather than on the design features of the body itself.

  The hot oil heating system for the spray pot preserves the thermoplastic material at a high temperature so that it may be readily unloaded from the spray pot into the hoses, manifolds, and spray guns.  The air compressor also assists in the unloading function by forcing material from the spray pot, bead tank, and tac coat tank.  Therefore, these articles contribute to the highway transportation function and are considered to be part of the body within the meaning of section 48.4061(a)-1(a)(3) of the regulations.  The jacketed hoses, manifolds, spray guns and spray guns carriages, and the above listed additional equipment are primarily designed to apply the thermoplastic material rather than to transport the material or to load or unload it, and hence do not contribute to the transportation function of the body.

  The thermoplastic pot melter described above is a component part of a vehicle designed to transport granular thermoplastic material over the highways to a job site, and is therefore a taxable truck body.  The burners, agitator, power takeoff and auxiliary gas engine serve to melt the material and preserve the material in a liquefied state so that it may be unloaded into the striping unit at the job site.  Therefore, these articles contribute to the highway transportation function within the meaning of section 48.4061(a)-1(a)(3) of the regulations.

HOLDING

  Sales by the manufacturer of the thermoplastic striping unit and the thermoplastic pot melter are subject to the tax imposed by section 4061(a)(1) of the Code.  Amounts charged with respect to the thermoplastic striping unit for the jacketed hoses, manifolds, spray guns, spray guns carriages, intercom system, flashing warning lights and floodlights, mechanical pointer, footage counter, cab console control, intermittent line mechanism, control panel seats, flashing signboard, speed meter, and optical pointer are not part of the taxable sale price provided the reasonableness of the charges is supported by adequate records.

Rev. Rul. 81-72, 1981-1 C.B. 497, 1981-9 I.R.B. 50.