Rev. Rul. 60-294

Advice has been requested whether the manufacturers excise tax on automobile parts or accessories applies to the sale of used automobile cylinder heads which have been restored to useful condition.

A company is engaged in the business of restoring unserviceable automobile cylinder heads to useful condition. The company sells its restored cylinder heads either outright or on an exchange basis. In the restoration process, the company welds all cracks in the cylinder head and grinds such welds to a smooth finish. The heads are then placed on a stationary circular electric grinder to allow the head to come to tolerance when engaged with a cylinder block. The valve seats are ground out and refaced, and the valve guides are replaced as needed.

Section 4061(b) of the Internal Revenue Code of 1954 imposes a tax on sales by the manufacturer, producer, or importer of parts or accessories (other than tires and inner tubes and other than automobile radio and television receiving sets) for any of the motor vehicle articles enumerated in section 4061(a) of the Code.

Section 40.4061(b)-3(a) of the Manufacturers and Retailers Excise Tax Regulations provides that rebuilding of automobile parts or accessories, as distinguished from reconditioning or repairing, constitutes manufacturing, and the rebuilder of such parts or accessories is liable for the tax imposed by section 4061(b) with respect to his sales of such rebuilt parts or accessories. Reboring or other machining, rewinding and comparable major operations constitute rebuilding. The person owning the part or accessory being rebuilt is the manufacturer of the article and is liable for the tax on his sale of the rebuilt part or accessory.

The process used in restoring unserviceable cylinder heads to useful condition for sale as described above is considered to be a rebuilding operation. Therefore, it is held that the restorer's sales of such rebuilt cylinder heads are subject to the manufacturers excise tax on automobile parts or accessories imposed by section 4061(b) of the Code. See Revenue Ruling 56-192, C.B. 1956-1, 506, for information as to the records to be maintained by the company in the case of exchange sales.