Rev. Rul. 61-36

The Internal Revenue Service has been asked whether it will issue individual Certificates of Registry to departments or agencies of a State under the circumstances described below.

Various agencies, boards, and commissions of a certain State are authorized by the State to make purchases of articles subject to manufacturers excise tax direct from manufacturers for the exclusive use of the State. The State desires to eliminate the record keeping involved in the issuance of exemption certificates in connection with tax-free purchases of such articles. Therefore, the State requests that its agencies, boards, and commissions be issued Certificates of Registry.

Section 4221(a)(4) of the Internal Revenue Code of 1954 provides that, under regulations prescribed by the Secretary of the Treasury or his delegate, no manufacturers excise tax shall be imposed on the sale by the manufacturer of an article to a State or local government for the exclusive use of a State or local government. Section 4221(d)(4) provides that the term `State or local government' means any State, any political subdivision thereof, or the District of Columbia.

Section 4222(a) of the Code provides the general rule that the provisions of section 4221 shall not apply with respect to the sale of any article unless the manufacturer, the first purchaser, and the second purchaser (if any) are all registered under section 4222. That section further provides that registration under the section shall be made at such time, in such manner and form, and subject to the terms and conditions, as the Secretary or his delegate may by regulation prescribe and that this registration may be used only in accordance with such prescribed regulations.

However, section 4222(b)(1) provides that section 4222(a) shall not apply to any State or local government in connection with the purchase by it of any article if such State or local government complies with such regulations relating to the use of exemption certificates in lieu of registration as the Secretary or his delegate shall prescribe to carry out the purpose of section 4222(b)(1). Section 316.24 of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, prescribes the procedure to be followed in connection with tax-free sales to States and local governments through use of the exemption certificate method.

Section 148.1-3(f) of the temporary rules relating to registration requirements for certain tax-free sales, Treasury Decision 6344, C.B. 1959-1, 776, as amended by Treasury Decision 6463, C.B. 1960-1, 872, provides, in part, that the purchaser shall note on the purchase order or other documents furnished to the seller by the purchaser the exempt purpose for which the article or articles are being purchased and the registration number assigned to the purchaser. Section 148.1-3(i) points out that a State or local government purchasing articles direct from the manufacturer for its exclusive use may, but is not required to, register as provided in this section of the regulations.

For simplicity of procedure, each State requesting registration will be assigned one Certificate of Registry. Accordingly, it is held that the registration number shown on such certificate may be used by all agencies, boards, and commissions of the State which are authorized by the State to make purchases for the exclusive use of the State. Purchase orders and other documents bearing such registration number and showing that the products are purchased for the exclusive use of the State may be accepted as evidence of tax-free sales by manufacturers in cases where the purchases are made direct from manufacturers, provided the manufacturers are likewise registered.

On the other hand, the registration number assigned to a State may not be used by any political subdivision of that State, such as a county or municipality. Each political subdivision of a state desiring to obtain a Certificate of Registry must apply for, and will be assigned, a separate registration number.

It should be noted that the exemption provided by section 4221(a)(4) of the Code applies only to the sale by the manufacturer of an article to a State or local government for the exclusive use of a State or local government. Therefore, sales made by the manufacturers to dealers, distributors, or other vendors for resale to a State or local government must be made on a tax-paid basis. In such cases, the exemption certificate procedure is necessary to support any claim for credit or refund under the provisions of section 6416(b)(2)(C) of the Code.