FET Tax on Trucks: What Owners and Buyers Need to Know
Understand how the federal excise tax applies to trucks, including key thresholds, calculation methods, and common filing mistakes to watch for.
Buying or selling a heavy truck in the U.S. often involves an extra cost: the Federal Excise Tax (FET). This tax can add a substantial amount to the purchase price and has been part of the federal tax system for a long time. Understanding how FET applies is necessary for owners and buyers to avoid unexpected expenses or penalties.
This article explains the FET on trucks, its application, and how to manage it when dealing with these vehicles.
Which Trucks Are Covered
The Federal Excise Tax (FET) applies to specific types of vehicles and chassis intended for highway use. The tax is generally levied on the first retail sale of items such as automobile truck chassis and bodies, truck trailer and semitrailer chassis and bodies, and tractors designed for highway use with trailers. A complete truck or trailer sale is considered a sale of both chassis and body for tax purposes.
The tax targets components meant for highway vehicles capable of transporting loads over public roads. A chassis or body is taxable if sold for use as part of such a vehicle. Components designed for vehicles like passenger cars are not subject to this specific excise tax. Whether an item is taxable often depends on its design and intended function.
IRS regulations help define these categories. A “tractor” typically tows trailers and doesn’t carry cargo on its own chassis, while a “truck” usually transports its load on the same chassis as the engine. The term “highway vehicle” covers self-propelled vehicles, trailers, and semitrailers designed for public highway transport.1Federal Register. Excise Tax; Tractors, Trailers, Trucks, and Tires; Definition of Highway Vehicle Vehicles primarily designed for off-highway use with limited road capability are generally excluded.
The taxability of a chassis and a body is assessed separately. A taxable chassis might be paired with a non-taxable body, or the reverse could occur. If the final product is a highway vehicle, the tax applies to the component meeting the taxable criteria. Installing a new, taxable body onto a used chassis can trigger the FET on the body itself.
Important Thresholds
Whether the Federal Excise Tax applies often depends on the vehicle’s weight. The tax generally targets trucks, trailers, and tractors exceeding specific Gross Vehicle Weight (GVW) limits.
For automobile truck chassis and bodies, FET applies if they are suitable for a vehicle with a GVW over 33,000 pounds.2Legal Information Institute. 26 U.S. Code § 4051 – Imposition of Tax on Heavy Trucks and Trailers Sold at Retail Trucks rated at or below this weight are typically excluded. For truck trailer and semitrailer chassis and bodies, the threshold is 26,000 pounds; components for trailers at or below this weight are not taxed.
Tractors used for highway towing face slightly different criteria. A tractor is excluded if its individual GVW is 19,500 pounds or less and its gross combined weight (GCW) with a trailer is 33,000 pounds or less. If a tractor surpasses either limit, it generally becomes subject to FET.
Gross Vehicle Weight refers to the maximum loaded weight specified by the manufacturer or retailer, considering factors like chassis strength and equipment. The IRS uses this rating, often found on official documentation, to determine taxability. If a vehicle initially sold below the taxable threshold is later modified to exceed it (e.g., by adding an axle), FET might become due based on the original price plus modification costs, with the owner at the time of modification potentially liable.
Calculating the Amount
The Federal Excise Tax on applicable vehicles is 12 percent of the price from the “first retail sale”.3Legal Information Institute. 26 CFR § 145.4051-1 – Imposition of Tax on Heavy Trucks and Trailers Sold at Retail This term generally refers to the initial sale after manufacture, production, or importation for a purpose other than resale or long-term lease.4Legal Information Institute. 26 U.S. Code § 4052 – Definitions and Special Rules
The sale price used for the tax calculation includes charges for parts, accessories, or modifications made to prepare the vehicle for use when sold as part of that first retail sale. Equipment installed on the chassis or body contributing to its highway function is usually included. However, the FET amount itself and any separately stated state or local retail sales taxes are excluded from the taxable base price.
When a trade-in vehicle is involved, its value does not reduce the price subject to FET. The tax is calculated on the total price, encompassing both cash paid and the value assigned to the trade-in. For instance, if a new taxable truck costs $20,000, paid with $16,000 cash and a $4,000 trade-in, the 12% FET applies to the full $20,000 ($2,400 tax). The IRS typically accepts the agreed trade-in allowance, but if it exceeds fair market value, the taxpayer might use the lower value if proven.
Adjustments are made for tires. While the price of tires on a new taxable vehicle is part of the sale price, a credit is usually allowed against the FET liability for the excise tax previously imposed on those tires under a separate code section, preventing double taxation.
If parts or accessories (excluding replacement parts) are installed on a taxable vehicle within six months after it was first put into service, a 12% tax applies to the price of those parts and their installation. This subsequent tax is triggered if the total price of such additions during the six-month period exceeds $1,000. If the threshold is met, the tax applies to all non-replacement parts and accessories installed in that timeframe. Significant modifications constituting “further manufacturing,” potentially altering function or restoring a wreck, can also trigger FET, especially if the cost exceeds 75% of a comparable new vehicle’s price, unless the vehicle was already taxed when new.
Filing and Payment Steps
The seller in the first retail sale—be it a retailer, manufacturer, or importer—is typically responsible for reporting and paying the Federal Excise Tax to the IRS. This is done using IRS Form 720, the Quarterly Federal Excise Tax Return, which covers various federal excise taxes, including those on heavy vehicles.5Internal Revenue Service. Publication 510, Excise Taxes
Form 720 is filed quarterly. Deadlines are the last day of the month following the end of each calendar quarter: April 30, July 31, October 31, and January 31. If a deadline falls on a weekend or holiday, it moves to the next business day.
Payment of the FET must be made electronically using the Electronic Federal Tax Payment System (EFTPS). Businesses need to enroll in EFTPS, providing their taxpayer ID, bank details, and business information. Once enrolled, payments can be scheduled online or by phone.
Although Form 720 is filed quarterly, tax deposits are often required more frequently. IRS rules generally mandate semi-monthly deposits for most excise taxes on Form 720 if the net tax liability for a semi-monthly period (first 15 days or the rest of the month) exceeds a threshold, typically $2,500 per Form 720 instructions. Payments via EFTPS must be initiated at least one business day before the due date.
Maintaining accurate records is essential. Businesses should keep detailed documentation supporting Form 720 filings, including sales invoices, GVW verification, records of exemptions or credits (like for tires), tax calculation worksheets, and EFTPS payment confirmations. These records are needed for accurate filing and potential IRS inquiries.
Common Errors to Avoid
Mistakes in handling the Federal Excise Tax on heavy trucks can lead to incorrect payments or liabilities. A frequent error involves misjudging Gross Vehicle Weight (GVW) or Gross Combined Weight (GCW) thresholds. Sellers or buyers might incorrectly assume a vehicle is exempt. For example, a chassis rated just below 33,000 pounds might still trigger FET if commonly used with a body pushing the final GVW over the limit. Tractors must be assessed on both individual GVW (19,500 lbs) and potential GCW (33,000 lbs).
Errors also occur in calculating the tax base. The 12% FET applies to the full first retail sale price, including necessary parts and accessories. A common misunderstanding involves trade-ins; their value does not reduce the price for FET calculation, unlike potential state sales tax treatment. Failing to include all required charges, like certain delivery or preparation fees, while correctly excluding the FET amount and state/local taxes, can lead to underpayment.
Confusion often surrounds parts and accessories installed after the initial purchase but within six months of the vehicle entering service. A 12% tax applies to non-replacement parts and installation if their aggregate cost exceeds $1,000 during this period. Sellers and owners sometimes mistakenly believe any post-sale installation is exempt or miscalculate the six-month window, which starts upon owner possession. Not tracking and taxing these additions when required is an oversight.
Misinterpreting the “first retail sale” concept can also cause problems. This is typically the first sale after manufacture or import for use, not resale. Issues arise with demonstrators, leased vehicles later sold, or imported vehicles. Determining the taxable transaction requires careful review of the rules. Modifications before the first retail sale are usually part of the taxable price, while significant modifications after an initial non-taxable sale (like upgrading a truck to exceed the GVW threshold) can make the owner liable for FET based on the modified vehicle’s value.
Finally, errors happen with exemptions and specific components. Sales to state and local governments are generally exempt, but sales to the federal government are not. Since chassis and body taxability are separate, adding a taxable body to a used, non-taxable chassis can trigger FET on the body. Relying on assumptions or informal information about taxability or exemptions, instead of adhering to IRS regulations and securing proper documentation like exemption certificates, can lead to liability during an audit.