Wealth advisors provide trailer dealers with tips, tricks for navigating FET, new tax laws

Only two things are certain in this trucking world – FET and taxes.

Admittedly, these certitudes are redundant, but “unnecessary” epitomizes how most trailer dealers feel about the Federal Excise Tax, especially when tasked with navigating the 100-year-old tax on truck and trailers purchases – while also attempting to interpret changes to income tax filing.

Fortunately for National Trailer Dealers Association (NTDA) members, CliftonLarsonAllen Wealth Advisors is offering its assistance.

The firm loaned two experts on tax law relating to heavy-duty truck and trailer sales, Tim Reynolds, principal, and Pat Hoppa, manager—both out of its Kansas City office—to attendees of the 28th Annual NTDA Convention where they provided updates, tips, and invaluable insight.

“What I’m going to tell you here is a compilation of things I’ve talked about or helped others with,” Reynolds said. “I’ve also handled several IRS exams, so this might give you some good information to take back, and some best practices to put in place, so you can stay out of hot water with the IRS.

“And when they do unfortunately come knocking, you’ll know how to handle it.”

Navigating FET

The dreaded federal excise tax imposed on the first retail sale of trucks and trailers debuted in 1917—helping fund World War I. 

More than 100 years later, the 12% tax is adding up to $22,000 to the price of a new unit.

Thus far, the tax has resisted multiple repeal efforts, including the most recent, HR 2946, the ‘Heavy Truck, Tractor and Trailer Retail Federal Excise Tax Repeal Act of 2017,’ sponsored by Rep. Doug LaMalfa and referred to the House Committee on Ways and Means in June of last year.

But Reynolds said he’s optimistic change is coming – with the right approach.

The key he said, is to present an alternative plan offsetting lost FET revenue, and focus on simplifying the rules.

“There is a lot of good traction in the industry to get this repealed,” he said.

“(But) you just don’t go there and say ‘Hey, we want this repealed!’ and expect to hear ‘OK.’”

In the meantime, make sure those tax-exemption forms are current and easily accessible.

“When the IRS comes in, the first thing they look at is exempt sales,” he said. “‘Why are you selling something exempt?’ You have to support it, whether it be with an exemption certificate or something in the codes and regs, to say ‘Hey, here’s why I sold that guy a trailer and didn’t charge FET.’”

Obtain the forms, fill them out, completely, and make sure they are submitted and verified prior to or at the time of the sale and dated correctly, because if the IRS wants to “play hardball,” they can make a sale taxable based on the most minor oversight.

And remember, farmers—no matter what they claim—are not FET exempt.

“Do not allow your customers to dictate what’s exempt and what’s not,” Reynolds said. “If I come in and say, ‘Well, the guy down the road’s not charging me FET on this,’ well, who cares? Tell me why it’s exempt because I’m on the hook. (An auditor) is not going to go after your customer.

“He’s coming after the seller.”

Also, don’t assume parts and accessories never serve a transportation function, Reynolds said. If the equipment preserves cargo, assists in the loading and unloading of cargo, affects the safety or maintenance of a unit, or contributes to the comfort and convenience of a passenger, it’s taxable.

And don’t let Publication 510 confuse you – or lure you into false security.

“It’s a great starting point, but it can also lead you down the wrong path a lot of times on determining if something’s taxable or not,” Reynolds said.

Reynolds also warned against trying to avoid FET by invoicing items separately and assuming a clean audit in the past equates to no liability in the future. 

“If they find (a problem) before you do, guess what, you’re writing a check,” he said.

Relevant reform

Hoppa reviewed key provisions from last year’s holiday-season tax reform, clunkily titled ‘HR 1—An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” aka the Tax Cuts and Jobs Act (TCJA), that may apply to trailer dealers.

The goal, Hoppa said, was to simplify tax code and make the US more competitive with international businesses.

“Overall, what we’re seeing is a reduction in rates, expansion of some credits, a number of new or modified provisions, and also some tradeoffs along the way,” he said.

For C corporations, graduated tax rates with a 35% maximum were reduced to one flat 21% effective tax rate.