Rev. Rul. 63-24

Advice has been requested whether the manufacturers excise tax on automobile parts or accessories applies to sales of used automobile radiators which are processed in the manner described below.

A company purchases used automobile radiators from salvage yards, junk dealers, and others. In all cases the radiators are cleaned, and in some cases new cores are installed. The radiators are cleaned by reverse flushing under pressure; by `boiling out' in a chemical solution and reverse flushing; or by `rodding,' which consists of running water through the bottom of the radiator and running a steel rod through each water line. All leaks are soldered, and the radiators are then painted and placed in stock for sale.

Section 4061(b) of the Internal Revenue Code of 1954 imposes a tax on the sale by the manufacturer, producer, or importer of parts or accessories, with certain exceptions not here material, for any of the articles enumerated in section 4061(a) of the Code.

Section 316.4 of Regulations 46, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2,47, provides that the term `manufacturer' includes a person who produces a taxable article from article from scrap, salvage, or junk material, as well as from new or raw material, (1) by processing, manipulating, or changing the form of an article, or (2) by combining or assembling two or more articles.

Section 40.4061(b)-3 of the Manufacturers and Retailers Excise Tax Regulations provides, in part, that the mere disassembling, cleaning, and reassembling of used automobile parts are regarded as `reconditioning' operations distinct from the manufacture or production of rebuilt articles and that the sale or use of such reconditioned parts is not taxable. That section further holds that reboring or other machining, rewinding, and comparable major operations performed on used parts being processed for sale are `rebuilding' operations constituting manufacture for purposes of the tax.

It is held that the above-described cleaning and soldering processes constitute reconditioning operations rather than rebuilding operations. Accordingly, sales of such reconditioned automobile radiators are not subject to the manufacturers excise tax imposed by section 4061(b) of the Code.

However, the installation of a new core constitutes a rebuilding or manufacturing operation, regardless of whether the core was manufactured, imported, or purchased (either tax free or tax paid) by the rebuilder. Therefore, sales by the manufacturer of such rebuilt automobile radiators are subject to the manufacturers excise tax imposed by section 4061(b) of the Code. Where a tax-paid radiator core is used in the rebuilding of the radiator, credit or refund of the tax paid on the core may be made or allowed in accordance with the provisions of section 6416(b) of the Code.

On the other hand, if the company restores a customer's radiator to usable condition for the customer's use, but not for resale, the restoration is a `repairing' operation. In such a transaction, neither the company nor the customer incurs liability for manufacturers excise tax, provided the core is not replaced. Since an automotive radiator core is an automobile part or accessory within the meaning of section 4061(b) of the Code, where the company making the repair replaces the original core with one it has manufactured, imported, or purchased tax free, the transaction involves the sale of the core by the manufacturer or importer thereof, and that part of the amount charged for the repair which is attributable to the core is subject to the tax imposed by section 4061(b) of the Code.