Understanding Federal Excise Tax (FET) on Imported Tractors and Trailers: A Guide for Trucking Companies

In the competitive world of freight transportation, securing the best deals on tractors and trailers often involves importing these vehicles from other countries. While the cost savings can be significant, it’s crucial to understand the implications of the Federal Excise Tax (FET) on these imports. 

This blog will walk you through when this tax is due, available exemptions, and specific considerations for leasing scenarios.

When is the Federal Excise Tax Due?

The Federal Excise Tax is generally imposed on the first retail sale of certain heavy vehicles, including tractors and trailers, within the United States. According to the Internal Revenue Code (IRC) §4051, a 12% tax applies to the sale price of these vehicles. However, the tax scenario becomes more complex when these vehicles are imported.

For Importers:

If your company imports tractors and trailers, you are liable for the FET when these vehicles are brought into the U.S. for use before their first retail sale. This liability includes cases where the imported vehicles are used by the importer (your company) before being sold or leased out. As outlined in IRC §4052(a)(3), the importer must pay the tax as if they sold the vehicle at retail.

Example Calculation:

Suppose your company imports a trailer with an invoice amount of $60,000. The FET would be calculated as follows: 

Here is a clear breakdown of the calculation:

1. Invoice amount: $60,000
2. FET rate: 12% (or 0.12 as a decimal)

Calculation: FET = $60,000 X 0.12 = $7,200

Exemptions from FET

Certain exemptions can relieve your company from paying FET on imported tractors and trailers:

1. Weight-Based Exemptions:

• Trailers: FET does not apply to truck trailers and semi-trailer chassis and bodies suitable for use with a vehicle with a gross vehicle weight of 26,000 pounds or less (IRC §4051(a)(3)).
• Tractors: Exempt if they have a gross vehicle weight of 19,500 pounds or less, and when combined with a trailer, the gross combined weight is 33,000 pounds or less (IRC §4051(a)(4)).

2. Specially Designed Vehicles:

• Vehicles primarily designed for off-highway use or for specific construction tasks can be exempt if their design substantially limits their highway use.

Leasing Scenarios: Long-Term vs. Short-Term

Long-Term Leases:

A long-term lease is defined as one year or more. According to IRC §4052(e), leasing an article on a long-term basis is treated as a sale, making the lessor liable for the FET. This means if your company leases trailers to related entities for a year or more, you must pay the FET as if you sold the trailers.

Short-Term Leases:

For leases less than one year, the leasing company (lessor) remains liable for the FET based on the first sale or use of the trailers. The lease itself does not trigger additional FET liability, but the initial use or sale by the lessor does.

How G&S Accountancy Can Help

Navigating the complexities of FET on imported tractors and trailers can be challenging. At G&S Accountancy, we specialize in helping trucking companies manage their excise tax obligations effectively. Our services include:

• Filing Excise Tax Forms: We ensure accurate and timely filing of Form 720, the Quarterly Federal Excise Tax Return.
• Exemption Guidance: We help you identify and qualify for applicable exemptions to minimize your tax liability.
• Relief from Penalties and Interest: Our proven strategies have successfully provided relief from penalties and interest, saving our clients significant amounts.

Conclusion

Understanding and managing the Federal Excise Tax on imported tractors and trailers is essential for trucking companies seeking to optimize their operations and costs. Whether dealing with complex import scenarios or navigating leasing arrangements, having a knowledgeable CPA firm by your side can make all the difference. 

Contact G&S Accountancy today to learn how we can assist you in managing your FET obligations and providing relief from potential penalties and interest. Let us help you focus on what you do best – running a successful transportation business.