AGC Construction Tax News
AGC Submits Comments to IRS on Proposed Mobile Machinery Tax/Key Senators Weigh In Against ProposalAGC has submitted written comments in response to the proposed IRS change in the federal excise tax treatment of mobile, off-road machinery such as mobile cranes and concrete pumpers. AGC opposes this change and urged the IRS to withdraw the proposed regulation. As proposed, the tax change would subject currently exempt mobile machinery to the 12% federal sales tax, as well as excise taxes on fuel, tires and a heavy vehicle tax. This equipment has been exempt from these taxes because it makes only limited use of the highway system. AGC believes that the current exemption is still warranted. Additionally, the "stealth tax" is poorly timed, as it comes just months after President Bush signed into law bonus depreciation to encourage companies to invest in expensive equipment such as mobile machinery. The IRS will hold a public hearing on this issue on February 27, 2003, and AGC has requested time to present oral testimony. A copy of AGC's comments can be accessed at http://www.agc.org/content/public/pdf/Legislative/02FinalCommentsTreasury.pdf.
The proposed change has also attracted the interest of several key members of Congress. Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Minority Member Max Baucus (D-MT) sent a letter to the IRS in December asking that this proposal be reconsidered. This Senate letter is a very positive development given the control these Senators exert over tax policy.
AGC also worked closely with Rep. Paul Ryan (R-WI) in developing a congressional letter to the IRS in opposition to the tax change. Eighty members of Congress signed this letter, and the faxes and phone calls from many AGC members helped generate support for this letter.
New Year Brings Variety of Federal Tax ChangesAmong them: the temporary 5-year carryback for net operating losses (NOLs) expired December 31; NOLs on tax years ending in 2003 can be carried back only two years. The wage base has increased to $87,000 (from $84,900 in 2002) for the 6.2% social security tax rate for employers and employees and 12.4% tax for self-employed workers. The mileage allowance for business use of a personal vehicle has dropped from 36.5 to 36 cents per mile. The automobile luxury tax has expired. The tax rate on fuels containing 10% ethanol (10% gasohol and biodiesel) has increased by 0.1 cent per gallon; thus, the tax break is now 5.2 cents instead of 5.3 cents per gallon. The interest rates for the calendar quarter beginning Jan. 1, 2003, drop by one percentage point in each category (see www.irs.gov/newsroom/index.html.) Additional tax rate table changes for 2003 are included in IRS Revenue Procedure 2002-70 available at www.irs.gov/pub/irs-drop/rp-02-70.pdf.
IRS Clarifies Depreciation for RetreadsIn Chief Counsel Advice Memorandum CCA 200252091, the IRS chief counsel discusses various fact patterns for retread or recap truck tires. In brief, retreads are to be treated the same as new tires, whether the retreads are placed on a vehicle when first acquired or as replacements, and whether or not the retreads were owned by the taxpayer before retreading or were exchanged for other tires with a retreading company. For the full text, contact email@example.com.
IRS Proposes Regulations to Capitalize Intangible Asset PaymentsThe IRS has proposed rules explaining how section 263(a) of the Internal Revenue Code applies to intangible assets. According to the Treasury Department, uncertainty regarding the proper treatment of amounts spent that result in intangible assets has caused significant controversy between taxpayers and the IRS in recent years. To clarify the application of section 263(a), the proposed regulations describe specific categories of expenditures incurred in acquiring, creating, or enhancing intangible assets that taxpayers are required to capitalize. Read the proposed regulations at http://www.irs.gov/pub/irs-regs/12563801.pdf.
Federal and State Court DevelopmentsIn Anderson Columbia Co. v. United States (Fed. Cl., No. 96-405T, 11/27/02), the court ruled against a taxpayer required to adjust its taxable income upward as a result of a change in accounting method from completed contract to percentage of completion. The Court found that the taxpayer was liable for interest on the additional tax paid beginning for the tax year ending March 1988, even though the IRS's consent to the accounting change only became effective in 1992 when an audit examination was closed.
In Golden Eagle Construction Company v. Pennsylvania, the state court ruled against a highway contractor/asphalt manufacturer seeking a refund of use tax paid for stone and oil purchased to manufacture asphalt for highway improvements. The case addresses questions about sales and use tax applicability for a taxpayer wearing three hats: first as a vendor of asphalt; second as a manufacturer of asphalt; and third, as an installer of asphalt pursuant to a highway construction contract. The tax implications differ depending on which "hat" the taxpayer wears for each business transaction.
The Wisconsin Tax Appeals Commission ruled in Amys v. Wisconsin Department of Revenue (No. 01-I-75) that a taxpayer may not claim a nonbusiness bad-debt deduction for a financial advance made to a foreign construction company. The case involved a Wisconsin taxpayer that had advanced roughly $78,000 to a Taiwanese construction company in 1993 that later went out of business in 1997. The taxpayer claimed capital losses related to this loss in 1996 and 1997 but the department denied the losses since they did not become worthless until after 1997 and the advance was not in the form of an investment or a loan.