Federal Excise Tax & Fleet Owners
Author: Bob Johnson Jr
Refund opportunities related to federal excise taxes (FET) remain, despite IRS movement on the issue. Recent IRS guidance could affect FET refund claims by changing and expanding the definition of chassis to include diesel particulate filters (DPF) and other components.
IRS Notice 2017-5 was issued February 6, 2017; the Treasury Department and IRS recognized taxpayers would benefit from definitions to help identify chassis and bodies subject to tax within Internal Revenue Code (IRC) Section 4051(a)(1), Imposition of Tax on Heavy Trucks and Trailers Sold at Retail, and apply the safe harbor provision in IRC Section 4052(f)(1), Definitions and Special Rules. Specifically, the notice defines a chassis to include these components as being attached to and part of a chassis: engine, axles, transmission, drivetrain, suspension, exhaust aftertreatment system—including, but not limited to, a DPF—and cab. The notice was effective January 6, 2017, though the Treasury Department and IRS are requesting comments related to the notice’s interim definition of a chassis by May 9, 2017.
Section 4051 states the addition of taxable parts and accessories within six months of the original sale of a unit in connection with a truck or tractor that was subject to FET are subject to the 12 percent FET regardless of when they’re actually installed or if they’re separately billed from the unit. These parts must be attached to a taxable body, chassis or tractor and contribute to the highway transportation function.
Section 4051 also provides a few exemptions to FET, e.g., the part or accessory installed is a replacement or the aggregate price of the parts, accessories and installation cost don’t exceed $1,000 within the first six months of the date the purchaser places the unit in service.
IRS Publication 510, Excise Taxes – Including Fuel Tax Credits and Refunds, provides guidance on items attached to a heavy truck or trailer that are exempt from FET, including:
- Parts added during warranty work or six months after purchase of the heavy truck or trailer
- Concrete mixers
- Nontransportation equipment and machinery
While there’s uncertainty concerning the definition of chassis, other FET refund opportunities related to DPFs remain.
If you have questions about DPFs, FET refund opportunities or preparing for contingencies related to the IRS Notice 2017-5, contact your local BKD advisor.