Sales Tax Slice: Nothing Dull in the Taxation of the Boring Company’s Planned Hyperloop

The Boring Company, fresh off a successful presale of its branded flamethrower, appears to be making progress on its plan to build a hyperloop from Washington, D.C. to New York City. The transportation company, founded by Elon Musk, has received a permit to begin initial construction work at a lot in Northeast D.C. In October, Maryland’s State Highway Administration granted the company a conditional utility permit to begin digging a portion of the hyperloop tunnel planned for construction in that state.

Bloomberg Tax’s Emilie Burnette previously discussed the tax issues surrounding the proposed construction. If and when construction is complete, the taxability of the pods that Musk envisions traveling through the hyperloop tubes at near the speed of sound will also become an issue. 

Musk introduced his concept of the hyperloop as a “‘fifth mode of transportation’” in 2013. The first four, namely boats, trains, motor vehicles, and airplanes, already enjoy exemptions in many states if used in interstate commerce. Some of these exemptions may apply to the proposed pods. Other states that want to extend preferred tax status to these items will need to enact new exemptions. 

For instance, Pennsylvania exempts rail transportation equipment used to move property. Pennsylvania does not define “rail transportation equipment,” so pods that travel along a central rail within a hyperloop tube could qualify for this exemption if used to transport cargo. However, if used to transport passengers, as planned for the Boring Company’s D.C.-to-N.Y.C. route, it seems that the exemption would not apply.

Maryland and New Jersey both exempt railroad rolling stock used in interstate commerce. Neither state defines “rolling stock,” so it is unclear whether this term would include hyperloop pods. Some other states limit the term “rolling stock” to equipment that travels on wheels, which would exclude wheelless hyperloop pods.

Neither New York nor D.C. has a rolling stock or similar exemption that might be applied to hyperloop pods. That being said, these pods would at least be on an equal footing with railcars use-tax-wise in these jurisdictions, since they do not exempt railcars either.

With so many engineering and financial hurdles still to overcome, it is probably a bit premature to be worrying about use tax on hyperloop pods. Nonetheless, when the time comes, the Boring Company will definitely want more certainty than exists in the law now.

Based on the plain meaning of the terms, would “rail transportation equipment” or “rolling stock” encompass hyperloop pods? Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn.

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