By Bob Pitcher, State Laws Newsletter
A couple of years ago, the federal Internal Revenue Service issued guidance to its auditors concerning glider kits. Motor carriers had been using gliders to refurbish used trucks and tractors, and using a provision of the Internal Revenue Code (section 4052(f)(1)) to accomplish the changes without the imposition of the 12 percent federal excise tax on the resulting vehicles. The IRS guidance determined that several fact patterns constituted the “remanufacture” of a vehicle, rather than its “repair or modification,” meaning that IRS auditors would no longer qualify circumstances of that type as eligible for FET exemption.
It’s our understanding that far fewer glider kits have been sold tax-exempt since that time. IRS has now issued definitions of vehicle “body” and “chassis” for purposes of the FET exemption. The law had up until now provided no such definitions. In substance, the new definition of a “chassis” is “a vehicle’s frame and supporting structure,” including such elements as the engine, axles, transmission, drive train, suspension, and cab. A vehicle “body” is the “cargo or load carrying structure,” such as a flatbed, tanker, or box body.
IRS concludes the notice with the statement: “IRS will use the definitions … to determine the threshold issue of whether a [vehicle] has been repaired or modified. In other words, the [exemption from FET] may be applied … only if the chassis or body being repaired or modified is identifiable as such within the meaning of the [definitions].” It is not clear to us just what this may mean in practice, but we doubt that it’s good news for motor carriers. IRS Notice 2017-5, issued February 6, 2017, and is available online here.