The distinction comes in how the different devices operate. The regulations that Sparkster mentioned all said something about "flashing", "strobing", "oscillating" or "rotating". "Flashing" is cycling the power ON and OFF, with the durations being approximately equal. "Strobing" is a very quick application of power, either with a xenon bulb or very bright LEDs. "Oscillating" is repeated alternating operation in a partial rotation. "Rotating" is continuous operation in a full circle.
A (properly designed) headlight modulator does NONE of those. According to what is required for proper modulation, the voltage to the headlight must never go below 16% of full operating voltage, and it must remain at full operating voltage for 50-70% of the time, AND it must cycle at 240 +/-40 cycles per minute. Since the headlight does NOT flash, it is not prohibited by the statutes above. 8-[ Besides, Federal Regulation FMVSS 108 (Federal Motor Vehicle Safety Standards) (49 CFR Part 571.108 S7.9.4) allows motorcycle headlight modulation systems in all 50 states provided they comply with the standards, and Title 49 USC 30103 (b1) (US Codes) prohibits any state from forbidding a system that conforms to FMVSS 108.
For brake light modulation, there does not appear to be any Federal or State agreement on whether they should be allowed or how they should work. However, many officers that I have asked about them seem to agree that, as long as not all of the brake lights flash, and, at some point they all remain steady, you will probably not be bothered. Some of the reasoning there is that if ALL of your brake lights go through a modulator and the modulator fails, do you have brake lights or not? They would prefer that some of your lights operate steady as normal.
Interesting sidebar, here. My city's police force has a Harley they use on patrol in favorable weather. It has an aftermarket LED tail/brake light with a built-in modulator. It is the only brake light, and it flashes for a few seconds then goes steady.
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