A sales tax exemption is allowed for certain purchases by motor carriers who operate in interstate and foreign commerce. A “motor carrier” means and includes a natural person, individual, partnership, firm, association, or private or public corporation, which is engaged in interstate commerce and which operates or causes to be operated on any highway in this state any commercial motor vehicle.
The exemption applies to purchases of the following items when used in interstate and foreign commerce:
- Motor vehicles and trailers
- Sales of component parts for motor vehicles and trailers
- The lease of motor vehicles and trailers without an operator
- Charges for labor and services in respect to “construction, cleaning, repairing, altering or improving” vehicles and trailers or component parts
Retail sales tax on carrier property
Generally, sales tax applies to the purchase of trucks, trailers, component parts and repair work performed on carrier property. This includes amounts charged for the lease or rental (with or without operator) of motor vehicles or trailers. However, carrier property that is purchased for use in interstate or foreign commerce by ICC or Motor Carrier (MC) permit holders or their subcontractors may qualify for a sales tax exemption in certain instances. To be exempt the purchaser must be an ICC or MC permit holder
The term “component parts” means any tangible personal property which is attached to and becomes an integral part of the motor vehicle or trailer. It includes items such as motors, motor and body parts, batteries, paint, permanently affixed decals, and tires. “Component parts” also includes the axle and wheels, referred to as “converter gear” or “dollies,” which are used to connect a trailer behind a tractor and trailer.
Items that do not qualify as “component parts” include equipment, tools, parts and accessories which do not become a component part of a motor vehicle or trailer used in transporting persons or property for hire. This includes items such as tire chains and tarps which are not custom made for a specific vehicle and sales of consumable supplies, such as oil, antifreeze, grease, other lubricants, cleaning solvents and ice.
In order to qualify for the exemption, the purchaser must give the seller an exemption certificate at the time of purchase. See section 4 of the Buyers’ Retail Sales Tax Exemption Certificate.
Recordkeeping requirement: All exemption certificates must be maintained by the seller for a period of 5 years. See WAC 458-20-254 for recordkeeping requirements.
Note: Even though carrier property (trucks, trailers, etc.) may qualify for a sales tax exemption at the time of purchase, the property will be subject to use tax if it does not meet the “in substantial part” test of operating at least 25% in interstate commerce.
If you have questions about the taxability of component parts, contact the Department of Revenue at 360-705-6705.
Use tax on carrier property
Generally, use tax applies to trucks and trailers primarily garaged in Washington if not used at least 25% in interstate commerce. Use tax applies even though the property may have qualified for a sales tax exemption at the time of purchase.
Use tax exemptions
Trucks and trailers are exempt from use tax if all of the following conditions are met:
- The carrier property is used by ICC or MC permit holders or their subcontractors
- The carrier property is used in hauling for-hire
- The carrier property is used substantially (at least 25% of time), in interstate commerce hauling for hire. (The determination for the percentage of qualifying use must be done at least once per year. See Annual Review.
In order to sustain exemption from use tax the ICC or MC permit holder must show proof of ICC or MC permit OR that they are operating under contract with an ICC or MC permit holder at the time of purchase.
The use tax exemption applies to component parts and repair work even if the parts are for use on a motor vehicle or trailer which is used less than twenty-five percent in interstate hauls for hire, provided the vehicle is used in hauling for hire.