Using a resale exemption certificate

From an NTEA member We are considering purchasing a new, taxable truck from the manufacturer, but are not certain whether we will use it in our business or re-sell it. If there is a possibility that we will re-sell it, are we required to provide the manufacturer with a resale exemption certificate with respect to Section 4051 tax? No, you are not required to provide the manufacturer with the resale exemption certificate. Although sales for resale may be conducted as tax-free sales (so long as all the requirements for tax-free treatment are satisfied), a purchaser is not required to treat the sale for resale as a tax-free sale. A purchaser is free to choose whether to conduct a sale for resale on a tax-free basis. If the purchaser wishes to do so, then the sale between the manufacturer and the purchaser is tax-free (i.e., the manufacturer is not responsible to pay the tax), but the sale between the purchaser and customer will be taxable, unless it is nontaxable on some other basis (e.g., the resale is to a local government and the sale otherwise complies with the requirements for a tax-free sale to a local government). In other words, a tax-free sale for resale does not eliminate the Section 4051 tax, but instead simply shifts the liability from the original seller to the reseller. In order for a sale for resale to be conducted on a tax-free basis, the purchaser must provide the seller with an exemption certificate in the form required by Treasury Regulations Section 48.4052-1, at or before the time of the sale, and the certificate must be signed by the purchaser and accepted by the manufacturer, in good faith. The resale exemption certificate includes, among other information, a certification by the purchaser, under penalties of perjury, that the taxable article is being purchased for resale. (Note that the form resale exemption certificate at Treasury Regulations Section 145.4052-1(a)(6) has not been updated to include the required penalties of perjury language. See Treasury Regulations Section 48.4052-1 for current updates to the certificate requirements.) Please note, in your case, there is a potential issue as to whether you even have the option to provide the manufacturer with a resale exemption certificate. If, at the time of the sale, you are uncertain as to whether you will resell the truck, you arguably may not satisfy the good faith requirement for certifying that the truck will be resold. If the purchaser decides not to provide a manufacturer with a resale certificate, the sale by the manufacturer to the purchaser will trigger Section 4051 tax. Therefore, the manufacturer will pay the tax on the truck (which generally will be calculated based on the sale price, plus a 4% presumed markup). However, the manufacturer’s sale price to the purchaser undoubtedly will increase to reflect the amount of Section 4051 tax the manufacturer is responsible to pay. In addition, if you do not want to treat the current purchase as a tax-free sale for resale, you need to determine if you have previously provided a resale exemption certificate to this manufacturer with respect to a prior sale. If the answer is yes, then you also will need to determine whether that exemption certificate applied only to the specific, prior sale or whether it applied to all your purchases from that manufacturer during an identified period of time (which is not permitted to exceed three years). If the certificate you previously provided to the manufacturer would apply to the current sale (i.e., the prior certificate was not transaction-specific and the applicable time period had not yet expired), then you will need to revoke the prior certificate before the current sale. This revocation must be in writing. A ruling which discusses these issues is TAM 200309002 (Sept. 27, 2002). In that ruling, a retail dealer sent the manufacturer a revocation, in writing, of its resale exemption certificate. The manufacturer paid the excise tax on its sale of certain trucks to the dealer. (The tax calculated by the manufacturer included the applicable presumed markup percentage. The ruling notes the presumed markup percentage was less than the dealer’s actual retail markup.) The Internal Revenue Service concluded that the dealer could elect not to purchase a truck for resale on a tax-free basis. Since the dealer made such an election, it was not responsible for Federal Excise Tax on its resale of those trucks, as there had already been a taxable sale (i.e., the sale from the manufacturer to the dealer). It is advisable consult with your tax counsel regarding specific transactions to fully understand the options and potential advantages and disadvantages regarding the use of a resale exemption certificate.

Using a resale exemption certificate

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