Rev. Rul. 58-287

Advice has been requested whether a finance or carrying charge on an installment sale is excludable from the taxable selling price for the purpose of computing the manufacturers excise tax.

A company sells business machines under an installment payment agreement. On all installment payment sales, a finance or carrying charge is computed on the unpaid balance of the sale price after deduction of the cash down payment. The charge is payable, along with the unpaid balance of the sale price, in monthly installments for the life of the installment payment agreement. The amount of the charge is stated separately on the installment payment agreement. The purchaser may accelerate the payments and receive a credit or adjustment of a proportionate part of the charge.

The manufacturers excise taxes which are based upon the price for which articles are sold, such as the tax on business machines imposed by section 4191 of the Internal Revenue Code of 1954, are subject to certain inclusions and exclusions set forth in section 4216 of the Code.

Whether a finance or carrying charge may be excluded in determining the selling price which is subject to the manufacturers excise tax should be ascertained in accordance with principles similar to those set forth in Revenue Ruling 57-437, C.B. 1957-2, 717, which pertains to the exclusion of bona fide service charges for the purpose of computing the retailers excise taxes.

The determination of whether a finance or carrying charge is to be excluded from the table selling price is a question of fact and is to be made from the circumstances in each case. In order for the charge to be excluded, (1) it must be based on the unpaid balance of the sale price and the length of time agreed upon for payment of the balance due, (2) the purchaser must receive a credit or adjustment of the charge proportionate to any accelerated payment, (3) the amount of the charge must be stated separately on the purchase agreement or on some other document pertinent to the transaction so that the purchaser is aware of his privilege of reducing the charge by making accelerated payments, and (4) there must not be present any factors which negate the bona fides of the transaction. The finance or carrying charge may include not only lawful interest but also charges to compensate the manufacturer for the bookkeeping and other expenses actually incurred as a result of the time payment purchase.

Accordingly, it is held that a finance or carrying charge made by a manufacturer in accordance with the conditions set forth above may be excluded from the manufacturer's taxable selling price.