Are military vehicles exempt from FET?

From an NTEA member Are military vehicles exempt from Federal Excise Tax (FET) under Internal Revenue Code (IRC) Section 4051? Are sales to the United States Armed Forces exempt? No, there is no general exemption from FET for the sale of military vehicles. Similarly, there is no exemption for sales of taxable vehicles to the federal government (including the U.S. military). The fact that there is no exemption for sales to the federal government can be the source of confusion. This is because there is an exemption for sales to state and local governments, so long as several requirements are satisfied. These requirements include, for example, that the seller has filed the appropriate Form 637 with the Internal Revenue Service (IRS); the use of the vehicle by the government is the vehicle’s first use; the sale is for the government’s exclusive use; the taxpayer sold the vehicle directly to the government; and certain certification and other documentation requirements are satisfied. See IRC Sections 4221(a)(4) and 4222; and Treasury Regulations Sections 48.4221-1 and 48.4221-5. So, the sale of a military vehicle to a state for use by the National Guard might meet the requirements for a tax-free sale to a state or local government, but a sale of the same vehicle to the federal government for use by the U.S. Army will not. See Revenue Ruling 70-11 (January 1970) (noting that “[s]ales of articles to a State for use by the National Guard are sales for the exclusive use of a State and are exempt from [FET] even though the articles are paid for from Federal funds”). There is also a possibility that the sale of certain military vehicles might not be subject to FET, because the specific vehicle at issue satisfies the mobile machinery or off-highway exceptions. See IRC Section 4053(8) and IRC Section 7701(a)(48)(A). However, these exceptions are complicated, technical and extremely fact-specific. In addition, over the last several years, the IRS has taken an increasingly narrow view as to the types of vehicles to which these exceptions apply. In other words, it often will be an uphill battle to convince an IRS agent that one of these exceptions applies to your vehicle. Relevant rulings There are not any known recent rulings addressing the taxability of sales of military vehicles for purposes of FET, but following are some citations to older rulings addressing whether a certain military vehicle satisfied one of these exceptions. These rulings can provide some insight as to how the IRS might treat the sale of a substantially similar vehicle; however, no taxpayer, other than the taxpayer to whom the ruling was issued, is entitled to rely on the ruling. In other words, the IRS is generally free to change its position on how it treats a particular military vehicle. In addition, the language of the off-highway exception has changed since the IRS issued these older rulings. The IRS could argue that the new language narrowed the scope of the exception, which potentially could limit the relevance of the older rulings that apply the off-highway exception to military vehicles. For some rulings in which the IRS determined that the mobile machinery or off-highway exception did apply to a specific type of military vehicle, see Letter Ruling 8415034 (Jan. 9, 1984) (semitrailer designed for transporting missile launching unit or radar unit for off-road operation, satisfied mobile machinery exception); Letter Ruling 8740007 (July 9, 1987) (semitrailer designed to specifications of military for transporting 70-ton US army battle tank and other similar military vehicles, satisfied off-highway exception); Letter Ruling 9044052 (Aug. 6, 1990) (4-axle, 8x8 truck chassis, with hydraulic pallet loading crane, that carries 33,000 pounds of artillery ammunition and is designed to support and follow combat vehicles on battlefields, satisfied off-highway exception); Letter Ruling 9119017 (Feb. 6, 1991) (5-axle, 10x10 truck chassis, with hydraulic pallet loading system and material handling crane, that carries 33,000 pounds of military payload and is designed to support combat vehicles on battlefields, satisfied off-highway exception). For some rulings in which the IRS determined that a specific type of military vehicle was subject to FET, see Letter Ruling 9824038 (March 16, 1998) (truck to support military combat vehicles sold only to military and designed consistent with military specifications, did not satisfy off-highway exception); Letter Ruling 9836016 (June 5, 1998) (truck for primary tactical transportation of military equipment and personnel sold only to military and designed consistent with military specifications, did not satisfy off-highway exception). Prior to relying on either the off-highway exception or the mobile machinery exception for purposes of treating a sale of a military vehicle as nontaxable under Section 4051, taxpayers are strongly encouraged to consult with their tax advisors.

Are military vehicles exempt from FET?

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