Tax time is upon us. And with that disturbing thought in mind, an article in the March edition of NTEA News caught my attention. It’s about the 12% Federal Excise Tax on new heavy trailers and how the FET is due twice if a vehicle is bought and sold within six months. That’s right — double taxation!
The Tech Trends article, co-written by the National Truck Equipment Association’s Bob Raybuck, director of technical services, and Steve Spata, technical assistance director, notes that a provision in the federal Tax Code says that, unlike trucks or tractors, “the sale of a chassis or body of a trailer or semitrailer… less than six months after the taxable sale of the article shall be treated as a taxable sale.”
Why would a resale be necessary? I’ve made up this example: You need a van for a new hauling contract and you snap up a new one from a dealer across town and put it to work. Then, you unexpectedly lose the hauling contract after three months. You can’t use the trailer for anything else, so decide to get rid of it. You find a buyer and sell it to him at a slight loss. But, you need to charge that guy the 12% FET or the Internal Revenue Service will be on your case if it ever finds out.
Now the numbers: You paid $13,000 for the brand-new van, plus $1,560 in FET. The dealer passes that 15 hundred and 60 bucks on to the IRS. Now you resell that slightly used van for $11,000. Because it’s less than six months since you first bought it, tax law says you must collect $1,320 in FET. Yes, that raises the effective price to $12,320 and the buyer complains, “That’s not fair. This is a used trailer.”
You could reply that “life’s not fair,” as certain public figures have so wittily remarked over the years, but the guy is liable to punch you in the nose. So, you instead cite Treasury Regulation Section 145.4052-1(a)(2)(iii) and hold out your hand for the money, then send the FET amount to the IRS.
However, there might be fairness after all. Raybuck and Spata also note that the law allows you to file for a tax credit based on the fact that you paid the FET when you first bought the new trailer. There’s a special form for this, and you’d have to submit that with documentation on both sales. This procedure is described in Treasury Regulation Section 145.4052-1(a)(4).
But be aware that the tax credit would not be for the original $1,560, but for the $1,320. That’s because under the law, the credit will be for the lesser of the two FET amounts paid on that trailer.
However, if you resold the trailer for $14,000, you’d have charged the buyer $1,680 for the 12% FET. In that case — after congratulating yourself for making a thousand bucks on that trailer — you’d apply for a tax credit of the $1,560 that you paid several months ago, when you bought it new, because it’s the lesser amount.
You’d also probably be liable for a capital gains tax on that thousand bucks, but that’s another story.
Of course you could’ve avoided this tax hassle by not buying that new trailer in the first place, or, when it became idle, parking it until that six months ran out. If that guy really needed the trailer right away because he just got a new hauling contract — ha ha, maybe the one you just lost — rent the trailer to him, then sell it after the six months.
Hmm. Now I suppose you'd have to pay income tax on the rental amount. Could you avoid that by just loaning it to him for a while, then do the deal? Or, should you pay the tax on the rental and pocket at least some of that dough? Er, my knowledge on these matters has just been exhausted. So, to get myself off the hook for anything I've just written, I’ll tell you to consult your tax adviser.