United States

IRS notice defines chassis and body for truck and trailer excise tax

Interim definitions applicable to first retail sale and safe harbor

TAX ALERT  | 

The IRS recently released Notice 2016-81 providing interim guidance relating to the section 4051 excise tax imposed on the first retail sale of heavy trucks, trailers and tractors. Specifically, the notice defines the terms ‘chassis’ and ‘body' for purposes of section 4051(a)(1) and the safe harbor under section 4052(f)(1). Further, the notice requests comments on the interim definitions.

Section 4051(a)(1) imposes a 12 percent tax on the first retail sale of seven specific articles: truck chassis and bodies, truck trailer and semitrailer chassis and bodies, and highway tractors. The first retail sale is defined as the first sale after production, manufacture or importation, other than for a sale for resale or lease in long-term lease. Section 4051(f)(1) excludes certain repairs and modifications from being treated as manufacture or production of the articles, thereby constituting a safe harbor against the imposition of excise tax upon the later first retail sale of the articles. Generally, the safe harbor allows for repairs and modifications of an articles to be exempt from the section 4051 excise tax if the cost of the repairs do not exceed 75 percent of the retail price of a comparable new article. However, the safe harbor only applies to a section 4051(a)(1) article that was taxable under that section when it was new.

Prior to the issuance of the notice, for purposes of the above code sections, ‘tractor’ was the only one of the seven taxable articles specifically defined by the IRS (see Reg. section 145.4051-1(e)(1)(i)). To remedy that lack of guidance, this notice provides interim definitions for chassis and body so that the remaining taxable articles for purposes of the initial tax and the safe harbor are defined.

Chassis

A chassis is defined as a vehicle’s frame, supporting structure and all components attached thereto, except for tax exempt components. The notice provides a nonexclusive list of components that are attached to a chassis and should therefore be considered as part of the chassis:

  • engine
  • axles
  • transmission
  • drive train
  • suspension
  • exhaust after-treatment system (including, but not limited to, a diesel particulate filter)
  • cab

A chassis does not include the vehicle’s body, as defined separately in the notice.

Body

A body is defined as the cargo or load carrying structure of a truck, trailer or semitrailer. The notice provides a nonexclusive list of what would be considered a body:

  • a flatbed body
  • a tanker body
  • a box body

The notice is effective on Jan. 9, 2017, and the IRS is requesting comments on the interim definitions provided in the notice until May 9, 2017.

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