There is a controversy brewing over a 12% federal excise tax added on to the retail price of trucks modified to pull fifth-wheel travel trailers. The tax could have a serious impact on the fifth-wheel travel trailer segment of the RV industry, according to the truck industry sources that were interviewed.

The issue is not new. It has been in the background for about four years, but it came to a head last summer.

For years, it was assumed the 12% tax only applied to trucks with gross vehicle weight (gvw) ratings over 33,000 pounds. However, the Internal Revenue Service (IRS) issued a “technical advise memorandum” last July stating that trucks equipped with a fifth-wheel hitch and brake controller box are subject to the tax at the time of retail sale, according to industry sources.

Because the most popular tow vehicles for larger fifth-wheels retail for $60,000 and up – and the tax is levied before any trade-in value is deducted – the tax has a significant impact on tow vehicle prices.

Additionally, the IRS has the authority to collect the unpaid tax from RV dealers who modify trucks for use as fifth-wheel pullers, tow vehicle upfitters or the truck manufacturers themselves. The agency also can demand payment of the tax on sales that occurred as far back as four years ago.

An IRS ruling on the excise tax issue forced out of business one fifth-wheel tow vehicle converter, Cabriolet Inc. of Constantine, Mich., according to Jim Westlake, director of the American Truck Dealers (ATD) division of the National Auto Dealers Association (NADA).

“Cabriolet didn’t know they had a taxable article,” Westlake said. “They (Cabriolet) were told they had to charge the tax on all vehicles they sold, but they couldn’t recover the tax from their customers.”

Freightliner SportChassis and the Ford F550, when equipped with an upfit package for towing, and F650 Super CrewZer trucks are among the tow vehicles that are subject to the tax, according to industry sources.

However, the 12% tax could be applied to all trucks modified to pull fifth-wheels, such as Ford F350s and F450s, said Mark Pendery, a Grand Rapids, Mich.-based attorney who is studying the situation.

“According to the IRS, if you are selling a vehicle substantially similar to the Freightliner (units that were modified by Cabriolet), then you have to collect the 12% tax from the retail buyer,” Pendery said.

Ford reduced the wholesale price on its model year 2001 F650 Super CrewZer units in order to absorb the cost of the 12% tax, according to industry sources. Consequently, Ford is taking a significant profit hit on Super CrewZers in order to encourage sales, the sources said.

Ford dealers now are collecting the tax from retail buyers, industry sources said.

However, it is not known whether Ford will continue absorbing the 12% tax on model year 2002 Super CrewZers, the sources said.

The IRS is applying “flawed logic” in assessing the tax against RV trailers because the intent of Congress was to assess and extra tax on commercial freight haulers who, because they operate heavy vehicles, cause more damage to the nation’s highways, said Westlake, the ATD director.

Consequently, the ATD has started lobbying Congress to get the Tax Code changed to exempt the trucks modified to pull fifth-wheels, horse trailers and other non-commercial trailers, Westlake said.

Major truck manufacturers have plans for their own congressional lobbying efforts and law suits by truck dealers and manufacturers also are planned in an effort to gain an exemption from the 12% tax, according to several industry sources.