Are there IRS registration requirements for FET tax-free sales?

From an NTEA member A new customer wants to purchase some vehicles on a tax-free basis (not charging any Section 4051 tax). Are there any Internal Revenue Service (IRS) registration requirements for such tax-free sales? It depends on the type of tax-free sale. In general, there are three broad categories of tax-free sales: (1) tax-free sales for resale (Treasury Regulations 48.4052-1); (2) tax-free sales under Internal Revenue Code (IRC) 4053 and 7701(a)(48); and (3) tax-free sales under IRC 4221. Tax-Free Sales for Resale In order to conduct a tax-free sale for resale, there are no registration requirements for either the seller or the buyer. Please note that the form certificate in the Treasury Regulations is outdated [see Treasury Regulations 145.4052-1(a)(6)]. Therefore, even though the form indicates that the purchaser must be registered, there is no longer a registration requirement. (See Treasury Regulations 48.4052-1). However, there are certification and other requirements necessary to conduct a sale as a tax-free sale for resale. Tax-Free Sales Under IRC 4053 and 7701(a)(48) This category of tax-free sale involves specific types of articles that are not subject to Section 4051 tax. A few examples are certain feed, seed and fertilizer bodies, certain concrete mixers and certain mobile machinery and off-highway vehicles. There are no registration requirements for either the buyer or the seller for this type of tax-free sale. However, note that the IRS interprets these tax exceptions narrowly (i.e., in a manner that potentially qualifying articles will not qualify for tax-free treatment). Tax-Free Sales Under IRC 4221 This category of tax-free sales involves articles that generally are taxable, but may be sold tax-free in certain, specific situations. A few examples of articles are sales to state or local governments, sales for export and sales to non-profit educational organizations. For all sales conducted on a tax-free basis under IRC 4221, the seller must be registered with the IRS. This is done by completing and filing with the IRS a Form 637. Once a seller has filed Form 637, it should receive a Letter of Registration. This letter should include the seller’s registration number, the effective date of the registration and the fact that the seller is registered for “Q” activities, which refer to making tax-free sales of heavy vehicles. In addition to the seller registration requirement, most sales under IRC 4221 also require the purchaser to be registered with the IRS. Exceptions to this requirement — when the purchaser is not required to be registered — are if the purchaser is a state or local government, is purchasing supplies for vessels or aircraft or, in certain circumstances, is purchasing for export. Please be aware that where a purchaser is excepted from registration requirements, other documentation is still required. In addition, it is important to understand that each type of tax-free sale under Section 4221 has its own specific requirements, in addition to registration requirements. For example, please refer to the previously mentioned May 2013 Excise Tax Enquirer article for information regarding the certification requirements for tax-free sales to state or local governments under Section 4221. However, note that in addition to registration and certification requirements, other requirements must be satisfied in order to conduct a sale to a state or local government on a tax-free basis. See Treasury Regulations Sections 48.4221-1 and 48.4221-5. Consult with a Tax Advisor The issue of whether a sale qualifies for tax-free treatment is very fact-specific, and registration requirements are just one factor in such a determination. As such, it is prudent to consult with your tax advisor prior to conducting a sale on a tax-free basis.

Are there IRS registration requirements for FET tax-free sales?

Recommended Articles

FET on cranes

Applying FET to spare/replacement parts and accessories

Applying FET to spare/replacement parts and accessories