Rev. Rul. 68-202

The Internal Revenue Service has been asked to construct a sale price, under the authority provided by section 4216(b)(1) of the Internal Revenue Code of 1954, for motor vehicle articles sold at retail under the circumstances described below.

A manufacturer of truck chassis and bodies obtained a contract by competitive bid. Under the contract the manufacturer was required to manufacture and supply a large quantity of trucks made to certain specifications. The trucks consist of bodies and chassis subject to the manufacturers excise tax imposed by section 4061(a)(1) of the Code. Because of their unique design, the manufacturer does not offer the trucks for sale to anyone but the contract purchaser. The purchaser acquires the trucks for use rather than for resale.

The manufacturer contends that, although the trucks are sold in a wholesale lot, for purposes of section 4216(b)(1) of the Code the sale is a sale `at retail,' because the sale is to a purchaser who is going to use the articles rather than resell them.

The specific question presented is whether the manufacturer may compute his manufacturers excise tax liability on the sale in question in accordance with the constructive sale price formula provided in Revenue Ruling 54-61, C.B. 1954-1, 259. That Revenue Ruling outlines a method for computing manufacturers excise tax liability on sales of automotive bodies at retail.

Section 4061(a)(1) of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of automobile truck chassis, and automobile truck bodies, truck and bus trailer and semitrailer chassis, and truck and bus trailer and semitrailer bodies (including in each case parts or accessories therefor sold on or in connection therewith or with the sale thereof).

Section 4216(b)(1)(A) of the Code provides that if an article is sold at retail, the manufacturers excise tax shall (if based on the price for which the article is sold) 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 of the Treasury or his delegate. The section further provides that, in the case of an article sold at retail, 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)(1) of the temporary regulations relating to constructive sale price 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.

Revenue Ruling 54-61, issued under section 3441(b)(1) of the Internal Revenue Code of 1939, the predecessor of section 4216(b)(1)(A) of the 1954 Code, provides, in the case of truck or truck trailer bodies sold only at retail, that the constructive sale price of such bodies is 75 percent of the established retail price subject to the adjustments provided in section 3441(a) of the 1939 Code (section 4216(a) of the 1954 Code).

The Service agrees, for purposes of the constructive sale price provisions of section 4216(b) of the Code, that a sale at retail is a sale for consumption, as distinguished from a sale for purposes of resale. Accordingly, the excise tax base for the sale in question must be constructed pursuant to the provisions of section 4216(b)(1) of the Code. However, the formula provided by Revenue Ruling 54-61 for constructing a sale price under section 4216(b)(1) is acceptable only with respect to the sale `at retail' transacted under the circumstances outlined in that Revenue Ruling.

An essential factual element of Revenue Ruling 54-61 is the presence of an `established retail price' for the article involved. By `established retail price' is meant the highest price for which a manufacturer regularly sells, or offers to sell, a single article to an independent purchaser who would not ordinarily be expected to buy more than one. No such price is present in the facts of the instant case, and for this reason Revenue Ruling 54-61 is not applicable.

It is held that in the case of a sale at retail where there is no `established retail price,' the constructive sale price (tax exclusive) of trailer chassis and bodies is whichever of the following amounts is the higher: (1) 75 percent of the actual sale price (excluding the amount representing manufacturers excise tax), or (2) the total cost to manufacture and sell the chassis or body, plus ten percent. The tax due is computed at the applicable statutory percentage of the higher of (1) or (2).

However, in any case in which application of the foregoing constructive sale price computation results in a tax that would exceed tax based on the actual price for which the articles are sold, the tax should be computed on the price for which the articles are sold ( 10/110 ths of the total sale price including tax).

For purposes of computing the tentative constructive sale price (1) above, the term `actual sale price' means the price for which articles are sold as defined in section 4216(a) of the Code. Accordingly, there should be included any charges for delivery of chassis and bodies to the purchaser and any charges for insuring the shipments. There should be excluded any expenses actually incurred in delivering the articles and in insuring shipment to the purchaser. The amount of the manufacturers excise tax incurred by the manufacturer on the sale also is excluded, whether or not stated as a separate charge.

If only the total sale price (including tax) is known, the `actual sale price' may be computed by a formula, as follows:

S/1 + rt = Actual Sale Price

`S' represents the total sale price (including tax) after adding any charges for, and deducting actual expenses incurred in, delivering and insuring the chassis and bodies;

`r' represents the applicable rate of tax (10 percent in this case); and

`t' represents the adjustment factor (75 percent in this case).

Illustratively, if a chassis or body were sold for a total price (including tax) of $2,150, the `actual sale price' would be $2,000 ($2,150 divided by 1.075). The tentative constructive sale price would be $1,500 (75%of $2,000), and the tax would be $150 (10%of $1,500).

Revenue Ruling 54-61 is distinguished.