By Rose-Michele Nardi
This article was published in the January 2016 edition of NTEA
Question: If we do not install an accessory, but
sell it with a chassis or body, is the accessory subject to Section 4051
Answer: Yes, but there are exceptions.
The general rule is the sale of an accessory may still be taxable, even if it is
not installed on a taxable chassis or body. An uninstalled accessory is taxable
if it is sold “with or in connection with” the sale of a taxable chassis or
In determining whether or not an accessory sale is “in
connection with” a chassis or body sale, the Internal Revenue Service (IRS)
looks beyond the four corners of the invoice. Treasury Regulations expressly
state that simply billing the accessory separately from the chassis or body will
not make it nontaxable. Similarly, if a customer ordered an accessory from the
seller, who is also selling said customer a taxable body/chassis, the sale of
that accessory generally will be treated as “with or in connection with” the
sale of the body/chassis (and, therefore, taxable). In addition, if a taxable
chassis/body is sold to a customer without an accessory essential for its
operation or appearance, the sale of that accessory will likely be treated as
“in connection with” the chassis/body — even if it is shipped separately from,
and at a different time than, the chassis or body.
Therefore, if a taxable chassis/body and compatible
accessory are sold to a customer, the IRS will probably conclude the accessory
is taxable, even if separately invoiced and shipped.
- An accessory sold “with or in
connection with” a nontaxable body/chassis generally will not be
- If selling a customer a taxable
body with a chassis accessory, or a taxable chassis with
body accessory, that accessory should not be taxable. See Technical
Advice Memorandum (TAM) 200023013 (Feb. 18, 2000) (noting axles are components
of a chassis and finding the sale of an axle is not “in connection with” the
sale of a taxable body).
- If an accessory is sold as a
spare or replacement part, it likely will not be taxable. However, any time a
taxable body/chassis and compatible accessory are sold together, the IRS may
assume the accessory was intended for use with the body/chassis being
sold. See TAM 9226005.
If selling a taxable chassis and compatible axle, and
the customer assures you the axle is a replacement part for a different chassis,
document on the purchase order that the customer will not use the accessory in
connection with the chassis you are selling. See Revenue Ruling 73-213 (stating
where “dealer indicated on his purchase order that the hoist was being purchased
for separate resale, and that he did not intend to combine or associate the
hoist with the body or chassis for resale or use,” the hoist was not sold “in
connection with” the sale of the taxable body/chassis).
If you are selling a taxable chassis/body, along with a
compatible accessory, but do not think the accessory should be treated as
taxable, consult with your tax adviser on this issue and determine what, if any,
documentation you should obtain from your customer.
Rose-Michele Nardi is a shareholder of the Washington, DC law firm
Transport Counsel PC.
For 18 years, she has advised clients on the proper application of the retailer
FET on trucks, trailers and tractors. Rose-Michele represents clients in IRS
proceedings involving FET, and regularly presents webinars and seminars for
truck dealers and upfitters.