Rev. Rul. 68-519

Advice has been requested as to the method for computing the manufacturers excise tax imposed by section 4061(a)(1) of the Internal Revenue Code of 1954, when truck and trailer chassis are sold at retail by the manufacturer thereof under the circumstances described below.

A manufacturer of truck and truck trailer chassis subject to the manufacturers excise tax imposed by section 4061(a)(1) of the Code, sells these articles to franchised dealers who resell at retail (i.e., to consumers). The manufacturer also sells his chassis at retail through his own factory branch outlets. The manufacturer maintains a retail price list which is available to his franchised dealers and also to his branch outlets. However, there is no requirement that the dealers or the branch outlets sell chassis at the retail list prices. In practice, the factory branch outlets negotiate each transaction with the customer, and as a consequence every sale is made at a discount off the price stated in the retail price list.

The manufacturer has requested the Internal Revenue Service to determine a constructive sale price, under the authority granted by section 4216(b)(1) of the Code, for his sales of chassis at retail through his branch outlets.

Section 4061(a)(1) of the Code imposes a tax on certain enumerated articles, including chassis and bodies for automobile trucks, sold by the manufacturer, producer, or importer. This tax is based on the price for which the articles are sold.

Section 4216(b)(1)(A) of the Code provides that if an article is sold at retail the tax shall be computed on the price for which such articles are sold, in the ordinary course of trade, by manufacturers or producers thereof, as determined by the Secretary or his delegate. The computation shall be on whichever of the following prices is the lower: (i) the price for which such article is sold, or (ii) the highest price for which such articles are sold to wholesale distributors, in the ordinary course of trade, by manufacturers or producers thereof, as determined by the Secretary or his delegate.

Section 148.1-5(b) of the temporary rules, Treasury Decision 6355, C.B. 1959-1, 795, provides that where a manufacturer, producer, or importer sells an article at retail, the tax on his retail sale ordinarily will be computed upon the highest price for which similar articles are sold by him to wholesale distributors. However, in such cases it must be shown that he has an established bona fide practice of selling such articles in substantial quantities to wholesale distributors. If he has no such sales to wholesale distributors, a fair market price will be determined by the Commissioner. In any case the price so determined shall not be in excess of the actual price for which the article is sold by him at retail. For purposes of section 148.1-5 of the temporary rules, the term `wholesale distributors' means persons who customarily resell to others who in turn resell.

Where a manufacturer does not sell similar articles to wholesale distributors, the constructive sale price for the manufacturers sales of truck and trailer chassis at retail has been determined to be 75 percent of the established retail price of the chassis, subject to the adjustments provided by section 4216(a) of the Code. See Rev. Rul. 54-61, C.B. 1954-1, 259. However, where the constructive sale price so determined is less than the manufacturer's cost of the chassis in condition ready for delivery, the manufacturer's excise tax shall be computed by using the manufacturer's cost as the tax base. For a method that may be used to compute an actual excise tax-excluded sale price, see Revenue Ruling 68-202, C.B. 1968-1, 477.

The facts in this case raise an additional problem in determining a constructive sale price. Ordinarily, a manufacturer's retail price list provides a basis for determining the `established retail price' of articles sold by the manufacturer. In the instant case, however, the manufacturer never sells his chassis at list price, but always sells at a price less than list. Under these circumstances, should the manufacturer's list price for chassis be considered his `established retail price' for the chassis?

For purposes of section 4216(b)(1) of the Code, the term `established retail price' is the highest price for which a manufacturer sells or offers to sell a single article for use by an independent purchaser who would not ordinarily be expected to buy more than one.

Since the manufacturer in this case never sells a chassis for as much as his retail list price, his retail list prices do not come within the meaning of `established retail price'. In one sense the list prices may be considered the prices at which the manufacturer offers to sell his chassis. However, the realities of the situation and the continuing sales practices and policies of the manufacturer negate the existence of any substantive relationship between the purported list prices and the prices at which he actually sells. Accordingly, in determining the manufacturer's `established retail price' under the facts of this case, the retail list prices are only suggested prices and should not be considered prices at which the manufacturer `sells or offers to sell' his chassis.

If a manufacturer selling exclusively at retail always sells at a certain discount off his published list price that discounted price is his `established retail price' for the article. However, since the manufacturer in the instant case sells at retail at varying discounts off list price, the price resulting from the minimum discount off list is his `established retail price' for the chassis for purposes of computing a constructive sale price.