1. When was the proposed rule issued?

It was published in the Federal Register on June 6, 2002.

2. When will the comment period close?

The IRS originally announced September 4, 2002. But in response to several requests, including from the Small Business Administration, the House Small Business Committee, and Senator Kit Bond, senior Republican on the Senate Small Business Committee, the IRS August 16 announced it would extend the comment period until December 3, 2002.

3. What happens after the comment period closes?

The IRS has "proposed" a rule change. IRS must review the comments it receives. It can take certain procedural steps, which might include scheduling a public hearing. At the end of the comment period, the IRS could make the rule effective as proposed, withdraw the rulemaking, or revise the rule in its final form. The content and amount of public comment the IRS receives by December 3 will have a very significant influence on the outcome of this proposal.

4. How long has the present rule been in effect?

The basic exemption for off-road equipment was established when the highway use taxes were established in 1956. The IRS last amended its rule in 1977. There have been regular minor IRS clarification rulings regarding specific equipment over the years

5. What equipment would now be subject to the taxes?

Under current law there is a three part test by which the IRS determines whether equipment is tax exempt. In simplified form, equipment has been exempt if the truck chassis had significant modification and the resulting portable equipment was primarily used in off-road situations. Under the proposed rule, if equipment can drive on the roads without a special permit, then it will be subject to all four of the excise taxes. Thus equipment such as mobile drilling units, digger derricks, concrete pumpers, mobile cranes, and aerial lift trucks would be taxed at purchase, at the fuel pump, at the tire dealer and annually on weight.

6. Under the rule, will fuel used in off-road situations be taxed?

Yes, equipment is either fully taxed or is tax exempt. Thus all fuel used is taxable. However, if there is a separate fuel tank for the non-truck element of the equipment, then that fuel will be exempt. The entire value of the truck chassis is subject to the purchase excise tax, regardless of the proportion of off road versus on road use.

7. What types of business are impacted?

Any industry with mobile heavy equipment will face increased taxes. Certain industries, many dominated by small business, will see the greatest impact. Affected industries include oil drilling, water drilling, utilities, commercial construction, timber, tower erectors, equipment leasing, and mining. An IRS spokesman said at an industry conference that the proposal would mean at least $ 100 million annually in higher taxes.

8. Did Congressional action require the IRS to act?

No, there has been no action by Congress on this issue, nor is there any other "external" factor which the IRS is citing as reason to proceed at this time with this proposed change in the tax treatment of exempt vehicles.

9. Why would the Bush Administration propose a tax increase on heavy equipment when that sector of the economy is struggling?

The proposed rule was issued by the IRS as a technical change, and not identified in any official publication as a tax increase. There is no indication that White House economic advisors were aware of or reviewed the proposal. Despite its informal comments, IRS did not identify the proposal as a "major" rule, one which would cost the economy over $ 100 million annually, thereby triggering requirements for various special cost benefit analyses. It is unclear if this rule was extensively reviewed by the White House Office of Information and Regulatory Affairs. IRS also did no small business impact analysis.

10. What would the impact be on firms of the elimination of the mobile machinery exemption?

There would be at least three kinds of impact.

1. Increased tax collections. IRS is quoted as estimating at least $ 100 million per year. This analysis is probably conservative, given the broad distribution of special mobile equipment among so many industries.

2. Increased paperwork and information collection by business. Equipment dealers who do not now have to file excise tax returns or collect tax at the purchase of exempt equipment would have to do so when such equipment is sold without an exemption. Equipment operators would, depending on the weight of the equipment, have to pay heavy equipment road taxes, as often as quarterly.

3. Dampened investment in new equipment. Eliminating the mobile machinery exemption will increase the purchase cost of mobile equipment by 12 percent. Ironically, that is almost the exact effective reduction in tax which an equipment purchaser would enjoy under the special depreciation provisions of the economic stimulus program (PL 107-147) approved by the Congress and signed by President Bush in March 2002.