FET on Government Agency Sales

Originally published in the May 2015 edition of Tech Trends (e-newsletter and as an article within NTEA News), this article is also available to you below as an employee of an NTEA member company.

Many members who make FET-eligible truck chassis, truck body and equipment sales are receiving conflicting information on which government agencies are exempt and how to properly document sales to tax-exempt government entities. Questions include:

• Who is eligible for tax-exempt government sales?
• Which government agencies are exempt?
• What paperwork is needed?

Helpful Tips

• First, as the seller of the taxable chassis, body or equipment, you are responsible for correctly documenting and executing the tax-free sale, or the Internal Revenue Service (IRS) will require the tax payment from you.
• Next, determine which companies are eligible for tax-free government sales.
  • Examples include city, state and county municipalities; state-run non-profit schools and universities; volunteer fire departments; recognized Indian tribes (with additional requirements); and more.
  • Examples of entities that are not exempt include the U.S. federal government, military branches (however, your state branch of the National Guard can qualify), and others. It is important to note, even if the entity is exempt according to a federal tax form like a 501(3) (C), FET exemption does not automatically apply to trucks, truck bodies and equipment.
• Also, the taxable item must be sold to the tax-exempt entity or government agency for its exclusive use. This can be a sticking point on municipal leases. For this reason, make sure that the agreement is structured to give the municipality sole use of the taxable articles. It is important for the seller to register with the IRS for tax-exempt sales (IRS Form 637). In addition, both the seller and the buyer must use the proper exemption certificates to document the tax-exempt sale. However, cities, states or county municipalities are exempt from these registration requirements.

Are you faced with technical or engineering challenges?
Contact the Technical and Engineering Hotline at (800) 441-6832 for individual attention on varied topics such as Federal Excise Tax, truck certification and labeling, vehicle compliance and truck spec’ing. The Hotline is available Monday-Friday, 8am-5pm (EST). Members can contact the Association as frequently as needed.