If you drive trucks, sell trucks, or run any trucking-related business, you need to be familiar with all the taxes and fees associated with trucks. For truckers just starting, you may need to budget for these tax responsibilities ahead of time.
Truck drivers who drive big rigs on the highway have to pay the Heavy Highway Vehicle Use Tax for their use of the highway each year. But the first tax a new truck driver will encounter is the federal excise tax on trucks.
What is Federal Excise Tax?
Excise taxes are taxes imposed on specific goods or products like gasoline or cigarettes. They are usually paid at the point of purchase and are usually included in the product’s price.
The federal government imposes a specific excise tax on sales of trucks and tractors. For the government’s purposes, a truck is defined as a highway vehicle primarily designed to transport its load on the same chassis as the engine, even if it’s equipped to tow a vehicle, such as a trailer or a semitrailer. That definition includes smaller trucks, but only trucks of a certain size require paying this tax.
Meanwhile, a tractor is defined as a highway vehicle designed to tow a vehicle, such as a trailer or a semitrailer. A tractor may carry incidental items of cargo when towing or limited amounts of cargo when not towing. A truck, truck trailer, or semitrailer is considered a sale of a chassis and a body.
The seller is liable for the tax. The seller may accept a statement from the buyer in good faith, stating that under penalties of perjury and executed in good faith, the purchaser intends to resell or lease on a long-term basis. The purchaser will be liable for the tax when the article is ultimately sold to a new buyer who will use it for its intended purpose.
When Do You Pay Excise Tax on Trucks?
IRS Publication 510 on Excise Taxes says that the Federal Excise Tax (FET) is imposed on the “first retail sale,” meaning the first sale for a purpose other than resale or leasing in a long-term lease, after manufacture, production, or importation.
Form 720 must be filed with the IRS for each quarter if you were liable for or responsible for collecting Federal Excise Tax. The due date is on or before the end of the month following the close quarter, i.e., Jan to Mar is due by April 30.
How to Calculate Excise Tax for Trucks
Internal Revenue Code Section 4051 imposes a 12 percent federal excise tax on the sale of trucks, trailers, and tractors used for highway transportation in combination with a trailer or semitrailer.
The FET does not apply to truck chassis and bodies suitable for use with a vehicle with a gross vehicle weight of 33,000 pounds or less. The FET also does not apply to a truck trailer and semitrailer chassis and bodies suitable for use with a trailer or semitrailer with a gross vehicle weight of 26,000 pounds or less.
Tractors with a gross vehicle weight of 19,500 or less and a gross combined weight of 33,000 pounds or less are excluded from the 12% FET.
Do You Pay Excise Tax on Used Trucks?
The FET is paid on the initial sale or use of the truck. If the truck were bought and used previously, an excise tax would usually be unnecessary.
However, there may be some instances where a used truck may be subject to FET. If the truck were exported to another country, the export would be exempt from FTE. However, when imported back to the US, and there is a subsequent sale, FTE would be triggered as if it were an initial sale or use.
These sales are also ordinarily exempt from excise taxes:
- Sales to a state or local government for its exclusive use.
- Sales to Indian tribal governments, but only if the transaction involves the exercise of an essential tribal government function.
- Sales to a nonprofit educational organization for its exclusive use.
- Sales to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in collecting, storage, or transportation of blood.
- Sales for use by the purchaser for further manufacture of other taxable articles.
- Sales for export or resale by the purchaser to a second purchaser for export.
- Sales to the United Nations for official use.
What Do Excise Taxes Fund?
These taxes fund the Highway Trust Fund, expenditures from which are generally used to repair and expand the federal highway system of the United States. Trucks and other heavy vehicles create a lot of extra wear and tear on roads, so these excise taxes contribute to ongoing road maintenance and infrastructure repair.
The Heavy Vehicle Use Tax
The seller is responsible for the retail FET due to a truck or trailer. The truck owner is then responsible for filing and paying Form 2290 for Heavy Highway Vehicle Use. This is an annual tax on the continuing use of heavy load-bearing vehicles. If the truck isn’t used very frequently, you may be able to waive the tax.
Only trucks that weigh 55,000 pounds or more require their owners to pay this tax. The deadline to file for the first time is the last day of the next month after the truck’s first use. See the form itself to find out how much your tax will be.
Consult a Professional
If you’re unsure about your obligations as a truck driver or seller, speak to an accountant to find out more. An accountant can also guide you through the paperwork and smooth out the process for you. It’s important to be informed and know your obligations, but sometimes the smartest thing to do is to let an expert help out. Getting someone who knows their way through the system can help you save money and make your business more efficient.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.