Rev. Rul. 55-98

Advice has been requested concerning the method of determining the tax due when a `rebuilt' armature is used in `reconditioning' a generator for sale (including exchange).

An automobile shop operates a generator exchange service. A generator accepted in an exchange is disassembled and cleaned, the armature is rewound or replaced with a previously rewound armature, and the generator is then reassembled, repainted, and placed in stock for subsequent exchange. The exchange price of such a generator is $10, while the established exchange price of a rewound armature is $1.50.

In the instant case the rewinding of the armature constitutes a `rebuilding' operation on a part which is then used as a component in the `reconditioning' of the generator. The tax should be based, therefore, upon the established selling price of such a `rebuilt' armature, namely $1.50, excluding the value of a like part accepted in exchange.

Revenue Ruling 54-329, C.B. 1954-2, 405, amplified