By Rose-Michele Nardi
Transport Counsel
PC
This article was published in the July 2015 edition of NTEA
News
Question: We are a dealership that sells a certain
body type. A customer gave me a copy of another dealership’s letter ruling in
which the Internal Revenue Service (IRS) determined the bodies sold by the other
dealership were not subject to Federal Excise Tax (FET) under Section 4051.
Those bodies are substantially similar to the ones we sell, and we typically
charge FET on our bodies. Does this letter ruling mean we can stop charging
FET?
Answer: It depends. A letter ruling (especially a
recent one) issued to a manufacturer/dealer can provide guidance on how the IRS
may rule with respect to sales of substantially similar bodies by other
manufacturers/dealers. However, only the entity to which the IRS issued
the letter ruling is entitled to rely on it. Therefore, if the IRS did not issue
the letter ruling to your dealership, it can treat the sale of your bodies as
taxable, even if it reached the opposite conclusion with the other
entity.
In other words, the IRS can always change its mind regarding article
taxability. A letter ruling generally protects the entity issued that ruling
(but only that entity) from an IRS change of heart. For example, if the IRS
determined an article was non-taxable in a letter ruling, but subsequently
changed its mind, the entity to which it issued the ruling would not be
responsible for FET on sales occurring before IRS notification of letter ruling
revocation or modification.
This protection would not extend to a competitor (or any other
entity) that did not charge FET because it relied on someone else’s
letter ruling. If the IRS subsequently determined the articles in someone else’s
letter ruling should have been treated as taxable, it could assess the
competitor for failure to pay FET on sales that occurred prior to the revocation
(or modification) of that letter ruling.
Before changing your tax position based on another entity’s letter
ruling, consult with your tax adviser to determine whether any differences
between the bodies you sell and those described in the letter ruling are likely
to affect taxability of the bodies. In addition, discuss with your adviser
whether the rationale in the letter ruling for determining an article’s
non-taxability is based on sound and traditional principles of FET law. Such
consultations will help you determine if reliance on another entity’s letter
ruling is a reasonable risk to take.
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 Services Hotline at
800-441-6832, Monday–Friday from 8 a.m.–5 p.m. EDT.
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.