By Rose-Michele Nardi
Transport Counsel
PC
This article was published in the March 2016 edition of NTEA
News.
Question: Our dealership is selling a truck to a
Canadian purchaser. Will this sale trigger Section 4051 tax?
Answer: It depends whether or not your sale will
trigger FET. Initially, you should determine if the truck previously was subject
to Section 4051 tax. For example, when you purchased it from the manufacturer or
another dealer, did you provide the seller with a valid resale certificate? If
not, then the sale by the seller may have triggered Section 4051 tax, in which
case, your sale to the Canadian purchaser would not be taxable. (The sale
of a truck generally initiates Section 4051 tax only one once.) An exception to
this general rule is if you modified the truck so extensively after purchase
that it’s considered “further manufactured.”
But, even if the truck was not involved in a prior sale
triggering Section 4051 tax, you can still sell it to a Canadian purchaser
tax-free, as long as you comply with applicable rules.
End-user purchases
If the
Canadian purchaser is an end-user, you may sell the truck tax-free,
if you comply with the requirements for a tax-free sale for export (see
Internal Revenue Code 4221(a)(2) and Treasury Regulations 48.4221-3 and
48.4221-1). These requirements include, among others:
- You previously filed Form 637
with the Internal Revenue Service (IRS), and the IRS provided a registration
number for tax-free sales of heavy trucks (i.e., a registration number for “Q”
activities), and
- You have proof of exportation,
in the form and within the time limits required by the IRS.
Dealer purchase
If the
Canadian purchaser is a dealer, there are two potential avenues for a
tax-free sale:
- A sale for export, as
previously mentioned.
- A sale for resale (see Treasury
Regulation 48.4052-1). A tax-free sale for resale has different requirements
than a tax-free sale for export. For example, it does not require the seller to
be registered with the IRS, but mandates the seller to obtain a resale exemption
certificate meeting specific requirements set forth in Treasury Regulation
145.4052-1(a)(6), as modified by Treasury Regulation 48.4052-1. Unfortunately,
the IRS has given some confusing guidance on which type of tax-free sale should
be relied upon when selling to a Canadian dealer.
Although a sale to a Canadian purchaser can be conducted
on a tax-free basis, taxpayers should proceed carefully. If it does not comply
with the appropriate requirements of a tax-free sale, the IRS may treat it as
taxable.
For sales to Canadian end-users, taxpayers should
understand the requirements for tax-free sales for export are somewhat complex,
and necessary documentation may vary depending on details of the export
transaction. For sales to Canadian dealers, be aware the IRS has not provided
clear guidance regarding with which tax-free requirements a seller should
comply. Therefore, before making a tax-free sale to a Canadian dealer, consider
consulting with your tax adviser to discuss necessary requirements.
This excise tax column appears every other month in
NTEA News to further member companies’ understanding of new tax codes or
changes. For questions regarding FET, members can call NTEA’s Technical Support
Hotline at 800-441-6832, Monday–Friday from 8 a.m.–5 p.m. EST.
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.