Truckstops Fail Floor-Space Test for 15-Year Recovery Period

L operates multi-building truckstops in Iowa and Missouri. The IRS categorized them as retail convenience stores, depreciable over 30 years. L claimed that they were retail motor fuels outlets eligible for a more favorable 15-year depreciation period. However, the district court concluded that Ls truckstop buildings did not meet the floor-space test, which requires that 50% or more of the floor space be devoted to petroleum marketing sales, after it excluded floor space for a movie theater, arcade, showers, laundromat and TV lounge on the second floor of the Iowa truckstop and a game room, showers and TV lounge in the Missouri building. L appealed to the Eighth Circuit.

Analysis

Sec. 168(e)(3)(E)(iii) allows 15-year depreciation for a retail motor fuels outlet (regardless of whether food or other convenience items are sold at the outlet). The determination of whether a facility is a retail motor fuels outlet used in the marketing of petroleum and petroleum products is made using either a gross revenues test or the floor-space test. According to an IRS Coordinated Issue Paper on Convenience Stores (March 1, 1995)(CIP), a building meets the floor-space test when 50% or more of the floor space in its property is devoted to petroleum marketing sales.

Congress directed that the floor- space test be determined pursuant to the CIP; see S Rept No. 104-281, 104th Cong., 2d Sess. (1996). The CIP framed the issue as whether gas station convenience store (C-Store) buildings and truckstops are included in Asset Class 57.1. However, the CIP neither describes typical truckstop features nor how to calculate truckstop floor space. Instead, it only discusses how C-Store buildings are structured and treated under Asset Class 57.1. Features such as counters used for the sale of gasoline dispensed from pump islands and automobile supplies (such as oil, anti-freeze and window-washer fluid) are devoted to the marketing of petroleum products. Areas not devoted to the marketing of petroleum products include the office area, storage, restrooms, food preparation area, walk-in cooler, general sales areas and, in some cases, customer seating. Structures primarily used to sell convenience items and not to market petroleum products would also be excluded.

Services-Comparison Standard

The CIP compares the services or goods provided at a structure with other similar markets to determine the status of the structure under Asset Class 57.1. It conceives a traditional service station as the guidepost; features typically associated with traditional service stations include service bays, tire changing and repair facilities and car lifts. The CIP further explains that adjacent carwash buildings are accepted as Asset Class 57.1 property, as are associated land improvements used for the marketing of petroleum products, such as pump islands and canopies.

The district court focused on the term devoted to determine whether the designated floor space could be aggregated in Ls favor. However, the proper inquiry is a comparison of the services L offers to the services offered at a traditional service station or other similar markets. Thus, if the services are comparable, they can be included; whereas, services similar to other markets are excluded. For example, the floor space in Ls trucker store, which sells truck parts and maintenance items, is similar to floor space used to sell automobile supplies such as oil, anti-freeze and window-washer fluid.

L argues that its multipurpose structure (excluded under Asset Class 57.1) is comparable to a separate car wash building (allowable under Asset Class 57.1), because both are an inducement in marketing petroleum products. This argument attempts to replace the test adopted by Congress through the CIP (i.e., services provided at a traditional service station) with a test of convenience and, thus, goes beyond what Congress intended.

Employing the services-comparison standard, the district court properly determined that L failed to meet the 50% floor-space test. The floor space attributed to the movie theater, arcade, showers, laundromat and TV lounge are not features normally associated with a service station. Also, the CIP specifically excludes a restaurant from Asset Class 57.1. Once these areas are removed from the aggregate floor-space, it is clear that L cannot meet the floor-space test.

The district courts grant of summary judgment is affirmed.

Iowa 80 Group, Inc., 5/4/05

Reflections: In a prior appeal of the same case, the Eighth Circuit affirmed the district courts determination that the truckstops failed to meet the gross-revenues test for treatment as a retail motor fuels outlet (Iowa 80 Group, Inc., 347 F3d 1067 (8th Cir. 2003)). However, the case was remanded to determine whether the truckstops could meet the 50% floor-space test. Before Sec. 168(e)(3)(E)(iii), the CIP viewed the gross-revenues test and floor-space test as a conjunctive two-prong test. In 1997, the IRS issued a revised CIP to formally adopt Congresss intent that the tests be disjunctive.