What is a Tire Credit? [Heavy Truck & Trailer Dealership Management]

What is a tire credit for dealers in the heavy truck and trailer industries? Let's take a look.

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**Disclaimer**: This piece is not intended to substitute professional financial or legal advice and may or may not reflect the most recently updated tax laws or IRS requirements. Please consult a certified professional before taking any action relating to such information. 

What is a tire credit in terms of Federal Excise Tax(FET)? 

what is a tire credit
To understand the necessity of recording tire credit amounts, it’s good to have an understanding of the Federal Excise Tax (FET) on the retail sales of heavy-duty trucks, trailers, and their associated parts. 

As we’ve covered in an article entitled “What is the FET (Federal Excise Tax)? FET for Heavy Trucking & Trailers,” the retail sales of heavy-duty trucks and trailers that that drive on public highways are subject to a 12% Federal excise tax (FET). This tax is also applied to their associated parts—including tires. 

Who pays the FET on truck tires and how much? 

The tire producer, importer, or manufacturer is responsible for paying the FET. While this is 12% of the taxable amount for heavy-duty trucks and trailers, FET rates on tires are determined with a specific formula: for every 10 pounds over 3,500 pounds of a tire’s maximum rated load capacity, each tire is subject to $0.0945 FET with a $0.04725 FET for bias-ply tires or super single tires used for steering—according to the official instructions for IRS Form 720.

Though this formula is readily accessible, many find it easier to acquire FET rates for specific tires from the tire manufacturer as well a section dedicated to the FET on the MSRP price listing. 

So, where does the “tire credit” come into play?

As we’ve mentioned, when selling a heavy-duty truck or trailer, such items are subject to a FET. While this is the case, because the producer, importer, or manufacturer has already paid the FET rate for the truck or trailer’s tires, this means that a dealership or upfitter would not need to pay the FET on the tires again. This tire credit amount should be logged in their dealership invoice management system for reporting purposes. 

How does a dealer determine the FET tire credit for a heavy-duty truck or trailer?

To determine the FET tire credit of a particular truck or trailer, one may: 

  • Use the above-listed formula (for every 10 pounds over 3,500 pounds of a tire’s maximum rated load capacity, each tire is subject to $0.0945 FET with a $0.04725 FET for bias-ply tires or super single tires)
  • Consult the tire manufacturer
  • Consult the MSRP price listing 

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About Ken Lane
Ken’s affinity for the heavy equipment industry was fostered as a curious youngster—becoming happily lost on his grandfather’s tractor sales and service lot (his favorite color is still Allis-Chalmers Orange). Since then, he’s perfected the art of turning black coffee into helpful buyer resources and marketing materials for My Little Salesman.
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