Are accessory sales subject to Federal Excise Tax?

By Rose-Michele Nardi
Transport Counsel PC

This article was published in the January 2016 edition of NTEA News.

 

Question: If we do not install an accessory, but sell it with a chassis or body, is the accessory subject to Section 4051 tax?

 

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 body.

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. 

Some exceptions

  • An accessory sold “with or in connection with” a nontaxable body/chassis generally will not be taxable. 
  • If selling a customer a taxable body with a chassis accessory, or a taxable chassis with
    a 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 (transportcounsel.com). 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.