Calculating FET on a taxable sale

From an NTEA member If we sell a truck chassis subject to Section 4051 tax (FET), is the amount of FET due on the chassis always based on the selling price of the chassis? Generally, yes — but not always. FET is a 12% tax. As a general practice, a seller can often determine FET due on a taxable sale by multiplying .12 (12%) times the price for which a taxable truck chassis is sold. However, this general practice will not always result in the correct calculation of FET. In some cases, the 12% FET should be applied to an amount that is less than the sale price. For example, this situation will occur if there are FET exclusions that generally apply (but other exclusions also may be available): Delivery/transportation charges from taxpayer’s place of business to the purchaser’s location pursuant to a bona fide sale (e.g., generally no exclusion of delivery charges for stock inventory or delivery charges from the manufacturer to the taxpayer dealer). Also, If the dealer is the taxpayer, and the taxable article is shipped directly from the manufacturer to the purchaser, then either none or only a portion of the delivery charges generally may be excluded. The amount of the FET. The amount of state and local retail sales tax, if the tax is separately stated. The value of used components if they are provided by the person/entity that will be the first user of the taxable chassis. The amount charged for equipment that does not contribute to the transportation function of the chassis, keeping in mind the Internal Revenue Service (IRS) broadly interprets the term “transportation function.” For example, IRS generally will determine that the following types of equipment contribute to the transportation function (and therefore the amounts charged for such equipment cannot be excluded from the taxable price): loading and unloading equipment and equipment that contributes to an article’s safety or maintenance, a cargo’s preservation (except refrigeration units), or a driver/passenger’s convenience or comfort. If an exclusion is applicable, the sales price generally could be reduced by the amount of the applicable exclusion, and then the 12% FET would apply to that reduced amount. In some other cases, the 12% FET should be applied to an amount that is more than the sale price. For example, if a manufacturer is responsible for paying FET on the taxable sale of a truck chassis, a “presumed markup” of the sale price generally will be required prior to calculating the 12% FET (Internal Revenue Code 4052(b)(4)). Another example is if the seller and buyer have a special relationship (i.e., one controls the other or the buyer and seller are under common control), or the seller and buyer make the sale “pursuant to special arrangements,” and the sale price is less than the fair market price of the chassis. In a such a circumstance, IRS likely will determine the 12% FET shall not be applied to the actual selling price, but instead to “the price for which similar articles are sold at retail in the ordinary course of trade, as determined by the” government (Treasury Regulation 145.4052-1(d)(10)). In addition, keep in mind the taxable price includes “the total consideration paid for the article whether that consideration is paid in money, services, or other forms” and includes “any charge incident to placing the article in condition ready for use” (Treasury Regulation 145.4052-1(d)(1)). So, for example, if only part of the consideration for the sale of a chassis is paid in money and the rest is paid with a trade-in chassis, FET is still calculated on the full sale price of the chassis being sold, and not just the portion of the price paid with money. Note, IRS treats a truck chassis and truck body as two distinct, taxable articles for purposes of FET. Accordingly, FET needs to be separately calculated for the chassis and the body. This article identifies some common exclusions that may result in the taxable price of an article being less than the sales price and a couple of common situations in which the taxable price of an article may be more than the sales price. However, this article is not intended to be comprehensive (i.e., there may be other exclusions/situations that decrease or increase the taxable price). In addition, (1) each exclusion may have its own rules and requirements that must be satisfied to reduce the amount of FET owed on a taxable sale, and (2) the details of each transaction may affect whether the sale price is the correct amount on which to calculate FET. Taxpayers need to talk with their tax advisor to determine the correct taxable price for purposes of calculating FET.

Calculating FET on a taxable sale

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