There's no getting around some tricky tax issues when you purchase, replace, or discard tires.

Truck managers have long known that tires present plenty of operational challenges: spec'ing, replacement vs. recapping, storage, and disposal, to name a few. Unfortunately, each of these issues also entails tax consequences that executives should know about in order to make the best decision for the bottom line.

Start with spec'ing - vehicles and tires. Highway tires over 40 lb. carry a federal manufacturer's excise tax based on the tire's weight. For tires weighing more than 90 lb. (the typical truck or trailer tire is around 120 lb.), the tax is $10.50 plus 50 cents for each pound over 90. That works out to $25.50 for a 120-lb. tire, or $255 for a set of 10 on a new tractor.

Buyers of tractors, straight trucks with a gross vehicle weight (GVW) exceeding 33,000 lb., and trailers exceeding 26,000 lb. must pay a 12% federal excise tax on the retail value of the vehicle. In the olden days - before this year - the presumed retail value of any new tires sold with the vehicle was deducted from the value of the vehicle before the vendor calculated the 12% "retail" tax.

That deduction was meant to avoid double taxation on the tires. However, the deduction gave vehicle dealers a strong incentive to inflate the tires' value. Claiming that a set of 10 tires was worth $5,000 yielded a tax saving of $600 off the 12% tax. Because original-equipment tires were not necessarily sold at retail, these valuations were often challenged by the Internal Revenue Service (IRS), which could trigger a nasty tax bill for the vehicle buyer. (The dealer has only "secondary liability" for the 12% tax.)

A change in the law enacted last year provides a credit for the actual tire tax paid instead of a deduction for the presumed retail value of the tires. Thus, the set of 120-lb. tires sold with a tractor generates a credit of $255, regardless of whether the dealer values the tires at $3,000 or $5,000.

That change may make truck buying more straightforward, but it may also cause buyers to spec cheaper tires than before - or even buy vehicles "barefoot" (without tires or with customer-supplied tires) to minimize the 12% tax. The change may also affect the economics of "super single" tires instead of doubles for some fleets; these extra-wide tires were once touted for their tax-saving ability, as well as their operating characteristics.

Once the vehicle is placed in service, income tax questions arise. The simplest choice is to depreciate the vehicle as a unit. The depreciation rules, known as "MACRS," allow tractors to be written off over three years, trucks and trailers over five.

MACRS does not prohibit separate treatment of the tires, although it does not establish a specific write-off period for them. The IRS also has not provided clear guidance as to proper income tax accounting for tires. As a result, some fleets have been writing off tires over 12 months, others over 18 months or longer, and still others include them as part of the vehicle. The IRS has challenged a few taxpayers about rapid write-offs and not questioned others.

Retreading or recapping allows tire owners to avoid the tire tax, which applies only to new tires. But by prolonging the useful life of the casing, the owner may give the IRS more grounds for challenging a fast income tax write-off.

Finally, tire disposal can trigger disposal fees that vary by state. (There is no federal tire-disposal tax, although such levies have been proposed.) However, choosing where to get rid of a tire does not necessarily minimize these fees; many states impose them on new tires, which are much easier to track. Thus, fleets that purchase vehicles or tires in different locations may want to take these fees into account when making a buying decision.

The bottom line: The tire balancing act involves interactions of excise taxes, income taxes, and fees, as well as rolling and recapping characteristics. Ignoring either type of tire cost can deflate profits unnecessarily.