FET on snowplows

From an NTEA member We sell truck chassis with permanently mounted snowplow equipment. The truck chassis have a gross vehicle weight rating (GVWR) greater than 33,000 pounds. Is an otherwise taxable chassis exempt from the Internal Revenue Service (IRS) Internal Revenue Code (IRC) Section 4051 Federal Excise Tax (FET) if the chassis is permanently installed with snowplow equipment? It depends. There is no specific FET exception for snowplow units. However, snowplow units often are sold to state and local governments. There is a specific FET exception for sales to state and local governments if those sales satisfy several requirements. Also, even if the chassis are subject to FET, it’s possible that at least some of the snowplow equipment might be treated as nontaxable. If you are selling an otherwise FET taxable chassis, body or tractor to a state or local government, you might be able to conduct that sale on a tax-free basis, but only if the sale satisfies several requirements. (Note, the FET exception for sales to state or local governments does not apply to sales to the U.S/federal government, but does apply to sales to the District of Columbia.) In order to treat a sale to a state or local government as tax-free for FET purposes, the sale, for example, must be made directly to the government purchaser and be for the purchaser’s exclusive use. So, for instance, if at the time of the sale to a state or local government, the seller knows the sale will involve a sale for resale, the IRS likely will conclude the sale does not satisfy these direct and exclusive requirements. A sale involves a sale for resale if The sale is to a person or entity that will then re-sell the snowplow unit to the state or local government (because that would likely violate the direct requirement), and The state or local government is purchasing the snowplow unit with the intent to re-sell it to another person or entity (because that would likely violate the exclusivity requirement). The IRS is likely to determine the exclusivity requirement is not satisfied even if the intended resale is to employees of the state or local government for use in the scope of employment and even if the intended resale will occur only after a period of use by the state or local government. See Treasury Regulation 48.4221-5 and TAM 9219005 (Jan 30, 1992) (citing a 1958 and a 1960 revenue ruling). A second example of the FET requirements to sell to a state or local government on a tax-free basis is the requirement that you obtain an exemption certificate from the state or local government (or the purchase order contains all the information described in the exemption certificate). This exemption certificate must be in the form described at Treasury Regulation 48.4221-5. It’s important to note that this form exemption certificate is not the same exemption certificate used for tax-free sales for resale; you cannot use a tax-free sale for resale certificate to support a tax-free sale to state or local governments. A third example of the FET requirements for a tax-free sale to state or local governments is that you must be registered with the IRS under IRC 4222, by filing Form 637. More specifically, you need to register for “Q” activities on Form 637 (Q activities refer to being the first retail seller of certain heavy vehicles). For a full description of all the requirements necessary to conduct a tax-free sale to a state or local government, see IRC sections 4221 and 4222, and Treasury Regulation sections 4221-1, 4221-5 and 4222(a)-1. If the chassis of the snowplow unit is not being sold to a state or local government entity (or it does not satisfy all the requirements for tax-free treatment), at least some of the snowplow equipment might be excludable from the taxable price of the snowplow unit. In general, if equipment/machinery does not contribute primarily to the transportation function of the chassis, the amount charged for such equipment/machinery will not be subject to FET (so long as such amount is supported by sufficient records). However, keep in mind that the IRS defines “highway transportation function” broadly to include, for example, loading and unloading, towing, vehicle maintenance or safety, cargo preservation (except refrigeration units) and driver comfort or convenience. See Treasury Regulation 48.4061(a)-1(a)(3). For example, in a 1977 Revenue Ruling, the IRS concluded that a certain detachable blade assembly was not taxable, but a certain mounting and lifting mechanism and power takeoff system, and certain components thereof, were taxable parts and accessories. See Revenue Ruling 77-103. Although this ruling is old and was decided under the predecessor manufacturers tax (IRC 4061), the general rationale of this ruling should still apply. However, the determination of whether certain equipment/machinery are taxable parts and accessories is highly fact-specific, and the type of snowplow equipment discussed in the ruling is likely different than the equipment used today. If the snowplow sale is to a state or local government, the details and documentation relating to the sale should be carefully reviewed by your tax advisor to determine if the sale can be conducted on a tax-free basis for FET purposes. (If a non-governmental entity is the purchaser, a review of the details of the transactions still may be helpful to determine if there is a different potential basis for a possible FET exception.) If FET applies to the snowplow unit, your tax advisor also should carefully review the specific features of the snowplow equipment to determine if any amounts charged for such equipment may be excluded from the calculation of FET.

FET on snowplows

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