Calculating federal excise tax (FET) on the first retail sale of trucks, trailers and equipment is a well known headache for dealers. United States tax code is detailed and frustratingly complex, and requires sellers to follow many hard to understand guidelines to ensure tax is levied and paid properly to avoid recourse from the Internal Revenue Service (IRS).
But what about cross border sales? How are dealers expected to manage those transactions?
During a webinar Tuesday presented by the National Trailer Dealers Association (NTDA) Tim Reynolds, CPA with Davidson, Holland and Whitesell (DHW) shared that in many cases, selling or purchasing equipment from out of the U.S. can often be easier than selling within the country. So long as each sale is properly documented.
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Reynolds started Tuesday's webinar with a focus on exports. He said U.S. tax code states the exportation of trailers are considered tax-free sales under IRC §4221 presuming all requisite forms are completed to show the unit was moved out of the states. Reynolds used the example of a U.S. dealer moving equipment to a Canadian customer to illuminate the point. He said a dealer that clearly notes in their deal file that a unit was sold out of the country and has IRS-approved documentation to provide to the agency should never be expected to assess FET.
Reynolds said acceptable forms of exportation documentation include:
- Copy of the export bill of lading issued by delivering carrier
- A certificate by the agent or representative of the export carrier that shows the items was actually exported
- A certificate of lading signed by a customs officer of the foreign country to which the item is exported
- A statement by the foreign consignee that shows the item was received, but only if the foreign country does not have a customs administration
The tax code is more complicated for dealer to dealer sales but Reynolds said there is still a path for that transaction to be tax free. In those instances, dealers must obtain a sale for resale certificate from the foreign dealer since it would be considered a U.S. sale. Additionally, if the title passes in the foreign country, Reynolds said proof the export occurred within six months of shipment date or sale date (whichever is earlier) is required.
He said the latter and improper documentation is often what trips dealers up, as the IRS will investigate a sale that should be tax free but was not properly documented as such. "If you don't have proper documentation ... guess who is responsible for FET in that case? That would be you, the seller," he said.
As for imports, Reynolds said the tax code is slightly more complicated, mostly because of the first retail sale requirement of FET.
A trailer produced in the United States and sold into this market first before being exported is not eligible for FET if it eventually returns to the U.S. market. But a trailer produced here and immediately exported is FET eligible, when it returns, because "first retail sale" FET has never been applied to the unit, Reynolds said. The good news in those cases, Reynolds added, is FET should be taken on the price of the first retail sale domestically, not the price the unit was sold for when new.
[RELATED: Register now for our upcoming webinar on bolstering your bottom line!]
Tuesday's webinar also touched briefly on state and local government sales exemptions. Reynolds said units sold to state and local governments are exempt from FET but again require documentation to avoid IRS investigations or fines. He said dealers are responsible for completing the necessary IRS forms when selling to states or local governments, and advised dealers on the call to include FET exemption documentation in their sales processes to avoid future penalties.
