By Rose-Michele Nardi
Transport Counsel
PC
This article was published in the September 2015 edition of NTEA
News
Question: Is Section 4051 tax due on
all chassis sales to end user customers? Are there some common
exclusions?
Answer: In general, all sales
of a taxable chassis (e.g., one with a gross vehicle weight rating exceeding
33,000 pounds) are subject to Section 4051 tax, unless the chassis falls
into one of four excluded sales categories.
1. Tax-free sale for
resale
If a chassis is sold for resale, the initial sale will
not be taxable if it complies with Treasury Regulation 48.4052-1. This
requirement includes an exemption certificate provided by the purchaser to the
seller at or before the point of sale. The certificate must be in the form
provided by the Internal Revenue Service (IRS) under Treasury Regulation
145.4052-1(a)(6), except it must now be signed under penalty of perjury,
and a registration number is no longer required.
Following are two important things to know about sales
for resale.
- A purchaser is not
required to provide the seller with a sale for resale certificate even if
the purchaser will, in fact, be reselling the chassis. If no resale certificate
is provided, the seller is responsible to pay Section 4051 tax, even though the
sale is not to an end-user customer.
- If the purchaser gives a sale
for resale certificate, the transaction may be conducted on a tax-free basis.
However, any subsequent sale by the purchaser to an end-user customer (or to any
other reseller without a resale certificate) will be subject to Section 4051 tax
(unless another exclusion applies).
2. Section 4221 tax-free sale
Under Internal Revenue Code (IRC) Section 4221, several
types of sales can be conducted on a tax-free basis, including:
- Sales to a state or local
government (Treasury Regulation 48.4221-5)
- Sales to a nonprofit
educational organization (Treasury Regulation 48.4221-6)
- Sales to a qualified blood
collector organization (no specific regulations)
- Sales for export (Treasury
Regulation 48.4221-3)
- Sales for further manufacturing
(Treasury Regulation 48.4221-2)
- Sales for vessel or aircraft
supplies (Treasury Regulation 48.4221-4)
These sales will not be subject to Section 4051 tax if
the statutory requirements for each type set forth in IRC 4221 are met, as well
as general and specific regulatory mandates. (General requirements are set forth
at 48.4221-1, and the specifics are noted in the list above.)
In addition to other requirements, in order for a sale
to be tax-free under Section 4221, the seller must file Form 637 with the IRS,
registering for “Q” activities (seller of heavy vehicles), and the purchaser
must also be registered with the IRS under Form 637 in some cases.
3. Prior taxable sale
If the chassis was involved in a prior taxable sale, any
subsequent sale will generally not be taxable.
Three items to note regarding prior taxable
sales:
- Unlike a sale for resale, if a
chassis has been sold tax-free under Section 4221 (and complies with all
requirements for such a sale), any subsequent sale will generally not be subject
to tax.
- After the initial taxable sale,
if the chassis is modified, it may be taxable if the alterations
constitute further manufacturing. Generally, if a chassis was involved in a
prior taxable sale, it will not be considered further manufactured unless the
modification cost is more than 75 percent of the retail price of a new chassis
comparable to the now-modified one. See IRC 4052(f).
- A special rule exists for
trailer and semitrailer chassis. Even if such a chassis was involved in a prior
taxable sale, the subsequent chassis sale still will be taxable if resold in
less than six months. (In such a case, the seller may have the right to claim a
credit for tax paid in the prior taxable sale if certain requirements are
satisfied.) See Treasury Regulation 145.4052-1(a)(4).
4. Certain exempt articles
Under IRC 4053, sales of certain chassis types may be
exempt from Section 4051 tax (e.g., mobile machinery vehicle, ambulance/hearse,
rail trailer/semitrailer and house trailer). In addition, a chassis may be
exempt from Section 4051 tax under IRC 7701(a)(48) (off-highway vehicle and
trailer/semitrailer designed as stationary shelter).
This information provides a general overview of the four
primary exclusions from a taxable sale. Determining if a chassis qualifies for
any of these is often very fact-specific. Taxpayers should consult with their
advisers prior to relying on any of the exclusions.
Rose-Michele Nardi is a shareholder of the Washington,
DC law firm Transport Counsel PC (transportcounsel.com). For
18 years, she has advised clients on the proper application of the retailer
Federal Excise Tax on trucks, trailers and tractors. Rose-Michele represents
clients in Internal Revenue Service proceedings involving FET, and regularly
presents webinars and seminars for truck dealers and
upfitters.