Current through Register Vol. 24-06, March 15, 2024
(1)Introduction. This rule
explains the use tax and available use tax exemptions provided by
RCW
82.12.0254 that apply to for hire motor
carriers operating in interstate or foreign commerce. See subsection (3) of
this rule for information on the requirement of substantial use in the normal
course of the carrier's business as a for hire carrier.
(a)
Readers may want to refer to WAC
458-20-174. For hire motor
carriers should refer to WAC
458-20-174 for a discussion of
the retail sales tax and retail sales tax exemptions that apply to motor
carriers for the purchase of vehicles, trailers, and parts under
RCW
82.08.0262 and
82.08.0263.
(b)Definitions. Definitions in
WAC 458-20-174 apply to this
rule.
(c)Examples.
This rule contains examples that identify a number of facts and then state a
conclusion. The examples should be used only as a general guide. The tax
results of other situations must be determined after a review of all of the
facts and circumstances.
(2)Use tax. The use tax
complements the retail sales tax by imposing a tax of like amount on the use
within this state as a consumer of any tangible personal property purchased at
retail, where the user has not paid retail sales tax with respect to the
purchase of the property used. For additional information on use tax refer to
WAC 458-20-178. If the seller fails
to collect the appropriate retail sales tax, the purchaser is required to pay
the deferred retail sales or use tax directly to the department of revenue
(department) unless the purchase and/or use is exempt from the retail sales
and/or use tax. Use tax is determined by the fair market value of the property
when first subject to the use tax. See subsection (5) of this rule.
(3)
Motor vehicles and trailers.
Purchasers of motor vehicles and trailers should note the differences in the
conditions and requirements for the retail sales and use tax exemptions
provided by
RCW
82.08.0263 and
82.12.0254, respectively. The
purchaser of a motor vehicle or trailer may qualify for the retail sales tax
exemption at the time of purchase, yet incur a use tax liability for the
subsequent use of the same vehicle or trailer.
(a)For vehicles purchased in Washington, RCW
82.12.-0254 provides a use tax exemption for the use of any motor vehicle or
trailer while being operated under the authority of a trip permit and moving
from the point of delivery in this state to a point outside this
state.
(b)RCW
82.12.0254 also provides a use tax exemption
for the use of any motor vehicle or trailer owned by, or operated under
contract with, a for hire motor carrier engaged in the business of transporting
persons or property in interstate or foreign commerce if both of the following
conditions are met:
(i) The user is, or
operates under contract with, a holder of a carrier permit issued by the
Interstate Commerce Commission (ICC) or its successor agency; and
(ii) The vehicle is used in substantial part
in the normal and ordinary course of the user's business for transporting
persons or property for hire across the boundaries of the state.
"In substantial part" means that the motor vehicle or trailer
for which exemption is claimed actually crosses Washington boundaries and is
used a minimum of twenty-five percent in interstate for hire hauling
.
(c)
Retaining the exemption. The motor carrier must continue to
substantially use the motor vehicle or trailer in interstate for hire hauls
during each calendar year to retain the exemption from use tax. This requires
that at the start of each calendar year the carrier review the usage of each
vehicle and trailer for a "view period" consisting of the previous calendar
year. If a particular vehicle was purchased or sold during the year so that the
vehicle was not available for use during the entire calendar year, the taxpayer
at its option may elect to review the usage during the portion of the year
during which the vehicle was owned or may use the twelve-month period beginning
with the date of purchase of a vehicle or ending with the date of sale of a
vehicle. For example, if a vehicle is traded-in on May 30, 2013, the taxpayer
must meet the substantial use test for this vehicle for either the period
January through May 2013 or for the period June 1, 2012, through May 30, 2013.
Use tax is due for those vehicles which have not been used substantially in
interstate commerce and on which retail sales or use tax has not been
paid.
(d)Maintaining records
on a fiscal year basis. Carriers who maintain their records on a fiscal
year basis may, at their option, elect to review the usage of their vehicles
using their fiscal year rather than the calendar year. If a fiscal year is
used, it must be used for the entire fleet of vehicles, except for view periods
based on the acquisition or disposal of vehicles. These carriers may not change
to a calendar year basis without first obtaining prior approval from the
department.
(e)
Calendar or
fiscal year basis only. Usage will be reviewed on a calendar or fiscal
year basis and not on a "moving" twelve-month period. For example, a tractor
purchased on August 1, 2012, will need to have met the substantial use test for
the period August through December 2012, or for the period August 1, 2012,
through July 31, 2013, the period selected being at the taxpayer's option, and
for the calendar year 2013 and each calendar year thereafter to retain the use
tax exemption.
(f)
Methods
for determining if motor vehicles and trailers qualify. The motor
carrier may select one of the methods from those listed below to determine if
its motor vehicles and trailers satisfy the substantial use threshold for
exemption under
RCW
82.12.0254. The particular method must be
applied to all trucks, tractors, and trailers within the fleet. Regardless of
the method selected, a vehicle will not be considered as used in interstate
hauls unless the vehicle actually crosses the boundaries of the state and is
used in part outside Washington. The motor carrier may change the method with
the prior written consent of the department . The methods are:
(i)
Line crossing. The line
crossing method compares the number of interstate for hire hauls made by a
particular motor vehicle or trailer to the total number of for hire hauls. It
makes no difference whether the for hire hauls are partial or full loads. The
motor vehicle or trailer must actually cross the boundaries of this state or be
used for hauls which begin and end outside this state, for the haul to be
considered an interstate haul.
(ii)
Mileage. The mileage method compares the interstate mileage
associated with the for hire hauls made by a particular motor vehicle or
trailer, to the total mileage associated with its for hire hauls. All mileage
associated with a specific haul that requires the motor vehicle or trailer to
actually cross the boundaries of this state, or haul exclusively outside this
state, is considered to be interstate mileage. Where a vehicle is returning
empty after having delivered an interstate load or is empty on its way to
pickup an interstate load, the empty mileage will be considered to be part of
the mileage from an interstate haul.
(iii)
Revenue. The revenue
method compares the interstate for hire revenue generated by the particular
motor vehicle or trailer to the total for hire revenue generated. The revenue
generated by the motor vehicle or trailer actually crossing the boundaries of
this state, or hauling exclusively outside this state, is considered to be
interstate revenue for the purposes of determining use tax liability. If the
motor carrier uses more than one motor vehicle or trailer to transport the
cargo, the revenue generated from hauling this cargo must be allocated between
the motor vehicles and/or trailers used. For the purposes of determining use
tax liability, a vehicle will not be considered as having interstate revenue
even if the haul originates or ends outside Washington unless the vehicle
actually crosses the boundaries of the state.
(iv)
Other. Any other method may
be used only when approved in advance and in writing by the department
.
(g)
(i) Example 1. ARC Trucking picks up a load
of cargo in Spokane, Washington and delivers it to the dock in Seattle,
Washington, for subsequent shipment to Japan. While ARC may claim an interstate
and foreign sales deduction on its excise tax return for the income
attributable to this haul if all of the requirements of
RCW
82.16.050(8) are met, the
haul itself is considered to be intrastate for the purposes of determining
whether the tractor and trailer (tractor-trailer) rig meets the substantial use
threshold discussed in
RCW
82.12.0254. Both the pickup and delivery
points are within the state of Washington.
(ii) Example 2. DMG Express picks up a load
of cargo in Yakima, Washington for ultimate delivery in Billings, Montana. The
cargo is initially hauled from the Yakima location to DMG's hub terminal in
Spokane, Washington by truck A. It is unloaded from truck A at the hub
terminal, reloaded on truck B, and delivered to Billings. For the purposes of
determining qualification for the use tax exemption provided by
RCW
82.12.0254, two hauls have taken place. The
haul performed by truck A is considered to be intrastate because truck A did
not cross the borders of Washington, while the haul performed by truck B is
considered interstate for purposes of determining continued exemption from use
tax on the trucks, even though the entire hauling income may be deductible from
the motor transportation tax.
(iii)
Example 3. AA Express operates one tractor-trailer rig, which has previously
met the retail sales and use tax exemption requirements. AA verifies compliance
with the twenty-five percent substantial use threshold on a calendar year
basis, using the line crossing method. AA makes one hundred for hire hauls
within the calendar year. Of these hauls, seventy-one are entirely in
Washington, ten are performed entirely outside Washington, and nineteen require
AA to cross the borders of Washington. AA Express has not incurred a use tax
liability on the tractor-trailer rig as twenty-nine percent of the for hire
hauls were interstate in nature.
(iv) Example 4. BDC Hauling operates one
tractor-trailer rig that has previously met the retail sales and use tax
exemption requirements. BDC verifies compliance with the twenty-five percent
substantial use threshold on a calendar year basis, using the mileage method.
BDC makes one hundred for hire hauls within the calendar year, for a total of
one hundred thousand miles. Included in this mileage figure are the unladen or
"empty" miles BDC incurs from delivery points to its terminal. Fifteen of these
hauls were interstate in nature and involved laden travel of twenty thousand
miles, including the Washington miles of the interstate hauls where the rig
made border crossings. BDC's tractor-trailer rig also incurred an additional
eight thousand miles as a result of having to drive unladen from the delivery
point of an interstate haul to its Washington terminal. BDC Hauling has not
incurred a use tax liability for its use of the tractor-trailer rig as
twenty-eight percent of the tractor-trailer's usage was in interstate
hauling.
(v) Example 5. GV Trucking
operates one tractor-trailer rig that has previously met the retail sales and
use tax exemption requirements. GV verifies compliance with the twenty-five
percent substantial use threshold on a calendar year basis, using the revenue
method. GV makes one hundred for hire hauls within the calendar year, for which
GV earns eighty thousand dollars. Fifteen of these hauls were interstate in
nature, for which GV earned twenty thousand dollars. GV Trucking has not
incurred a use tax liability for its use of the tractor-trailer rig as
twenty-five percent of GV's usage of the tractor-trailer rig was in interstate
hauling.
(vi) Example 6. XYZ
Trucking operates a single tractor-trailer rig that has previously met the
retail sales and use tax exemption requirements. XYZ picks up two loads of
cargo in Seattle, one load for delivery to Kent, Washington, and another for
delivery to Portland, Oregon. At delivery of the cargo to Kent, XYZ picks up
another load for delivery to Portland, Oregon. XYZ has performed three separate
hauls, even if the loads are combined on the same tractor-trailer rig. The
Seattle to Portland and Kent to Portland hauls are considered interstate hauls,
and the Seattle to Kent haul is intrastate. Under the mileage method, the
mileage associated with the Seattle to Portland and Kent to Portland hauls
would be added together to determine total interstate miles, even though the
tractor-trailer rig made only one trip to Portland. Under the revenue method,
the revenue generated by the Seattle to Portland and Kent to Portland hauls
would be considered interstate. The revenue associated with the Seattle to Kent
haul would be considered intrastate.
(4)
Special application to
trailers. Motor carriers must keep appropriate records and determine
qualification for the use tax exemption provided by
RCW
82.12.0254 for each individual truck and
tractor. Motor carriers are encouraged to keep similar records for each
individual trailer. Where records are maintained to document the use of
individual trailers, it is encouraged that use tax liability for trailers be
determined on the basis of those records. However, it is recognized that some
motor carriers do not have an adequate system of tracking or documenting the
travel of their trailers and it would be an undue burden to require such
recordkeeping, particularly where a tractor may be used to pull multiple
trailers and the trailers are not assigned to a specific tractor. Motor
carriers may elect to determine the use tax liability attributable to their use
of trailers on the basis of their actual use of the tractors. Whether the motor
carrier uses their records or the ratio of fleetwide trailers to tractors that
method must be applied to all trailers within the fleet. The motor carrier may
change the method with prior written consent of the department.
(a)Under the trailer to tractor ratio method,
it is assumed that there is a direct correlation between the use of tractors
and the use of trailers. Whenever use tax is incurred on a tractor because of
the failure to maintain the twenty-five percent interstate usage, use tax will
also be due on one or more trailers. The number of trailers subject to the use
tax under this method shall correspond to the fleetwide trailer to tractor
ratio. Any trailer to tractor ratio resulting in a fraction shall be rounded up
when determining the number of trailers subject to the use tax. For example, if
the fleetwide ratio of trailers to tractors is two and one quarter to one, and
one tractor fails to maintain the substantial use threshold in a given year,
the motor carrier shall incur a use tax liability on three trailers. If two
tractors fail to maintain the substantial use threshold in a given year, the
motor carrier shall incur a use tax liability on five trailers.
(b) The trailer or trailers subject to use
tax under this method shall be those acquired nearest to the purchase date of
the tractor triggering the use tax liability for those trailers meeting the
following conditions:
(i) The trailer or
trailers are compatible for towing with the tractor upon which use tax is
incurred; and
(ii) The trailer or
trailers have not previously incurred a retail sales or use tax liability;
and
(iii) The trailer or trailers
have been actively used in hauling for hire in the year tax liability is
incurred.
(c) Under this
method of reporting, use tax liability is generally incurred on one or more
trailers whenever a tractor is subject to the use tax. If a tractor is
purchased with the intent that less than twenty-five percent of the hauls will
be across state borders, it will be presumed the tractor will also be pulling a
trailer or trailers on which use tax is also due. For example, ABC Trucking has
eight tractors and fifteen trailers in its fleet. The tractors and trailers met
the exemption from retail sales tax and use tax at the time they were
purchased, and it was determined during previous annual reviews that the
tractors continued to be substantially used on interstate hauls. However, at
the time of the annual review for the just-completed calendar year it was
determined that one tractor was not used at least twenty-five percent in
interstate hauls. Use tax is due on this tractor. Under this method, use tax is
also due on two trailers. The two trailers on which use tax must be reported
are the two purchased closest to the purchase date of the tractor.
(5)
Valuation. The
value of the motor vehicle or trailer subject to the use tax is its fair market
value at the time of first use within the view period for which the exemption
cannot be maintained. However, because the taxpayer will not know until the
close of the period whether the usage met the exemption requirements, the use
tax is due and should be reported on the last excise tax return for that view
period. For example, a motor carrier who has previously met the exemption
requirements for a particular truck determines this truck no longer was
substantially used in interstate hauls during calendar year 2013. Use tax
should be reported on the last tax return filed for 2013 with the taxable value
based on the value of the truck at January 1, 2013. If the motor carrier is
using a fiscal year as the view period (see subsection (3)(e) of this rule),
the use tax should be reported, based on the value of the truck on the first
day of the view period, on the last tax return filed for the view period. The
motor carrier must not change from calendar to fiscal year view periods without
prior written consent of the department.
(a)
Determining valuation. The department will accept independent
publications containing values of comparable vehicles if those values are
generally accepted in the industry as accurately reflecting the value of used
vehicles. The department will also consider notarized valuation opinions signed
by qualified appraisers and/or dealers as evidence of the fair market value. In
the absence of a readily available fair market value, the department will
accept a value based on depreciation schedules in effect and used by the
department of licensing to determine the value of vehicles for licensing
purposes.
(b)
Examples.(i) Example 7. ABC
Trucking purchased five trailers for use in both interstate and intrastate for
hire hauls on January 1, 2012. All the necessary conditions for exemption under
RCW
82.08.0263 were met; delivery was made in
Washington, and the trailers were purchased without payment of the retail sales
tax. The taxpayer uses the "line crossing" method for determining interstate
use.
ABC Trucking keeps a journal showing the origin and destination
for each haul that identifies each truck or tractor and trailer used on a per
unit basis. This journal is reviewed at the end of each calendar year to verify
compliance with the statutory provision that motor vehicles and trailers be
substantially used for transporting persons or property for hire across the
boundaries of the state. During the first year of use, all five of the trailers
met the "substantial use" threshold. However, for the 2013 calendar year, ABC
Trucking determines that two of the trailers failed to meet the twenty-five
percent "substantial use" threshold. ABC Trucking must remit use tax directly
to the department on its last excise tax return filed for 2013, based on the
fair market values of the two trailers as of January 1, 2013. Because the
taxpayer maintained specific usage records for each trailer, the "substantial
use" in interstate hauling must be met by each trailer for which exemption is
claimed. If detailed records for usage of trailers had not been kept, use tax
liability of the trailers would have been based on the tractors. In any event,
use tax liability may not be determined based on the overall experience of a
fleet of vehicles. If a vehicle is used both in hauling for hire and in hauling
the carrier's own products, the "substantial use" is determined solely on the
usage in for hire hauling .
(ii) Example 8. DB Carriers is a motor
carrier that is engaged in both intrastate and interstate for hire hauls. DB
purchases and first uses a truck in Washington on January 1, 2012. All the
necessary conditions for exemption under
RCW
82.08.0263 were met; delivery was made in
Washington, and the truck was purchased without payment of the retail sales
tax. DB Carriers uses the "line crossing" method to determine interstate use.
DB Carriers keeps a journal showing the origin and destination
for each haul that identifies each truck used on a per unit basis. This journal
is reviewed at the end of the 2012 calendar year, and DB determines that the
truck failed to meet the twenty-five percent "substantial use" threshold. DB
Carriers must remit use tax directly to the department on its last excise tax
return filed for 2012, based on the fair market value of the truck as of
January 1, 2012. DB Carriers may not compute the use tax liability based on the
December 31, 2012, fair market value as the vehicle never satisfied the
substantial interstate use provision of
RCW
82.12.0254.
(6)
Leased vehicles.
The use tax exemption requirements are the same for leased vehicles as for
purchased vehicles. Motor vehicles and trailers, leased with or without
operator are exempt from the use tax if the user is, or operates under contract
with, a holder of a permit issued by the ICC or its successor agency and the
vehicle is used in substantial part in the normal and ordinary course of the
user's business for transporting persons or property for hire across the
boundaries of the state. This requires that the leased vehicle be used a
minimum of twenty-five percent in interstate hauls. The taxpayer may elect to
use either the fiscal year of the business or a calendar year to determine if
the leased vehicle was used substantially in interstate hauls for hire. Where
the vehicle lease does not begin or end at the start of the calendar year (or
fiscal year if the business uses a fiscal year view period), the same
requirements apply to leased vehicles as to purchased vehicles (see subsection
(3)(c) of this rule).
(a)Substantial use
requirement not met. If the leased vehicle or trailer does not meet the
substantial use requirement during the "view period," the use tax applies to
each lease payment within the "view period" where there was use in Washington .
Use tax will be determined first for each "view period," then for each periodic
lease period within the "view period." For example, if a truck was leased on a
monthly basis for the years 2013 and 2014 and failed to meet the substantial
use requirement in 2013, but met the requirement in 2014, use tax would only be
due for the monthly payments for January and September of 2013 if those are the
only two months during which usage in Washington occurred in 2013.
(b)
Examples.
(i) Example 9. BG Hauling , a for hire
carrier , enters into a lease agreement for a truck without operator on January
1, 2013. All the necessary conditions for the retail sales and use tax
exemptions for the first year of the lease were met. BG Hauling verifies
compliance with the twenty-five percent substantial use threshold on a calendar
year basis.
BG determines that this truck failed to meet the twenty-five
percent substantial use threshold for calendar year 2014. Use tax will be due
beginning with the period for which the exemption was not met, in this case
beginning with January 2014. However, BG Hauling may report use tax only on
each lease payment in which payment period there was actual instate use,
provided it maintains accurate records substantiating the truck's instate and
out-of-state activity. If BG Hauling continues to lease this truck in 2015,
usage will again be reviewed for that period and use tax may or may not be due
for the 2015 lease payments, depending on whether the vehicle was used
substantially in interstate hauls during that year.
(ii) Example 10. MG Inc. is an equipment
distributor which, in addition to hauling its own product to customers, is
engaged in hauling for hire activities. MG is a holder of an ICC permit. MG
enters into a lease agreement for a truck without operator on January 1, 2013.
All conditions for retail sales and use tax exemption are satisfied for the
first year of the lease.
Based upon the truck's for hire hauling activities during the
2014 calendar year, MG determines that the use of the truck failed to satisfy
the twenty-five percent substantial use threshold. MG must remit use tax on the
amount of lease payments made during 2014 at the time it files its last tax
return for 2014. Provided accurate records are maintained to substantiate
instate and out-of-state use, MG may remit use tax on each lease payment in
which the payment period there was actual instate use. While only the hauling
for hire activities are reviewed when determining whether the truck satisfies
the substantial interstate use threshold, once it is established the exemption
cannot be maintained, the use tax liability is based upon all instate activity,
including the motor carrier's hauling of its own product.
(7)
Component
parts.RCW 82.12.0254 also provides a use
tax exemption for the use of tangible personal property that becomes a
component part (including purchases of services related to that component part)
of any motor vehicle or trailer used for transporting persons or property for
hire. This exemption is available only for motor vehicles or trailers owned by,
or operated under contract with, a person holding a carrier permit issued by
the ICC or its successor agency authorizing transportation by motor vehicle
across the boundaries of this state. Since carriers are required to obtain
these permits only when the carrier is hauling for hire, the exemption applies
only to tangible personal property purchased for vehicles that are used in
hauling for hire. The exemption for component parts will apply even if the
parts are for use on a motor vehicle or trailer that is used less than
twenty-five percent in interstate hauls for hire, provided the vehicle is used
in hauling for hire.
Statutory Authority:
RCW
82.32.300. 97-11-022, § 458-20-17401,
filed 5/13/97, effective 6/13/97; 94-18-004, § 458-20-17401, filed
8/24/94, effective 9/24/94.